The Federal Reserve is expected to raise interest rates this week and this has us asking the question as to whether US Treasuries are a better buy now over dividend stocks. Let’s take a look at the pros and cons after we look at some Treasury rates
The 1 year US Treasury has a yield of 4.05% as of this posting and the Fed hasn’t raised rates yet.
Let’s take a look at some of our defensive dividend stocks.
2022-07 Stock Portfolio
| Ticker | Company | Industry | Dividend | P/E |
| BHP | BHP | Industrial Metals & Mining | 13.22% | 8.75 |
| BMY | Bristol-Myers Squibb | Healthcare | 2.83% | 26.65 |
| BP | BP | Energy | 4.63% | N/A |
| BWA | BorgWarner | Auto Parts | 2.02% | 12.33 |
| CMCSA | Comcast | Comm Svcs | 2.71% | 12.84 |
| CSCO | Cisco | Comm Equip | 3.62% | 15.16 |
| GILD | Gilead Sciences | Healthcare | 4.65% | 17.52 |
| ILPT | Industrial Logistics Properties Trust | REIT Industrial | 9.28% | 10.06 |
| MPW | Medical Properties Trust | REIT Healthcare | 7.44% | 8.33 |
| PRU | Prudential | Insurance | 5.06% | 7.77 |
| RY | Royal Bank of Canada | Financial Banks | 4.10% | 11.06 |
| STT | State Street Corporation | Financial Asset Mgmt | 3.66% | 2.28 |
| SWK | Stanley Black & Decker | Industrials Tools | 2.95% | 14.31 |
| SWKS | Skyworks Solutions | Technology Semiconductors | 2.34% | 11.92 |
| MATV | Mativ | Basic Materials Paper Products | 7.85% | 9.71 |
| TWO | Two Harbors | REIT Mortgage | 14.23% | 11.71 |
| UGI | UGI Corp | Utilities | 3.72% | 7.02 |
| VFC | Vanity Fair | Consumer Cyclical Apparel | 4.47% | 14.78 |
| VZ | Verizon | Telecom Services | 4.97% | 9.87 |
What are the pros and cons and which is better?
TREASURY BONDS
Pros
- Guaranteed by the US taxpayer
- Fixed High (4%) yield
- Exempt from state income tax
Cons
- No/limited appreciation in value
- Fixed time duration (1 Yr, 2 Yr, 10 Yr, 30 Yr, etc)
DIVIDEND STOCKS
Pros
- Potential for equity appreciation
- Extra income from selling call/put options
Cons
- Potential for equity depreciation or bankruptcy
- Potential for dividend cut or elimination
- Volatile during market turmoil
Which one is better? There is no easy answer to that question because everyone’s financial needs and journey is different. In our opinion, the best thing to do is to have a diversified portfolio that includes as many investment options as possible that work to diversify as much as possible for an investors needs. While bonds are a great choice for steady, reliable income they lack growth opportunities and while equities offer growth and additional income opportunities, they are also riskier and volatile.
In our example, many of our dividend stocks have recently plunged in value however we think it’s a great time to buy more as we intend on holding these equities for the rest of our lives. We advised that we were only “nibbling” at these stocks and buying small amount of shares at a time. Our target time frame for acquiring more shares of these equities will be in late 2023 or early 2024 dependent on incoming macro and micro economic data trends. In the meantime, we set our stocks to DRIP (dividend re-investment program) so that as the market continues to drop, we are buying more shares with the dividends and we will supplement that with larger purchases.
We’ll keep you posted, in the meantime, stay tuned and stay solvent…