Bonds may still be safer than dividend stocks (more double-dip recession worries)

al Reuters ^ | 10/28/2009 | John Parry

[markomalley]

Banking on a sustained recovery, some investors are switching out of corporate bonds into dividend-paying stocks, but if a second recession ensues, those bets could turn bad.

In a double-dip recession, which some analysts fear may happen next year, more companies may be forced to start cutting dividends, as happened in the recent economic crisis.

If that went hand in hand with steep falls in stock prices, corporate bonds might be a safer place to be than dividend stocks, especially if inflation were subdued, analysts said.

"If you get a sell off, the stability of that dividend will be put in question," said William Larkin, portfolio manager with Cabot Money Management. "If we get a double dip, people will price in that those dividends are going to be cut."

In that scenario, high yield bonds would likely beat dividend stocks returns, provided the default rate for such bonds continues to fall, Larkin added.

Such risks have not stopped bond investors plunging into stocks, on confidence in a sustained economic recovery, and fears of inflation -- the bete noire of debt markets.

[Proud_texan]

high yield bonds would likely beat dividend stocks returns"

I see "high yield" I read "junk" and I invest in junk bonds...in certain markets. They certainly have never held up very well in past recessions and they tanked pretty good in the last so I dunno...

Now higher rated corporate bonds are another matter.

[taildragger]

My question is when the Bush Tax Cuts die, does the Dividend Rate Reductions down to 15% in his 2nd tax bill get canned by these clowns as well.

If so you have the Clinton go-go years senario of dividend taxed potentially being taxed @ the 39.6% bracket which will make a comback which is one reason IMHO why everyone went into "growth" stocks, i.e. Tech. Yummy...

[palmer]

fears of inflation

No, the certainty of inflation. Either the Fed will credibly stoke inflation and fears of inflation and cause the stock market to keep rising, or the stock market will fall. They are slowly boxing themselves in to the choice between monster inflationary bubble and depression. There are still people like BB who think there is such a thing as interest rate policies having something to do with sustainable economic growth. But that time is long gone, all we have now is ridiculously low short term rates fueling carry trade (which causes bubbles elsewhere that will end catastrophically) and manipulated long term rates that are killing any chance of long term investment in anything except housing and other baubles.

[proxy_user]

Try oil stocks. They pay good dividends, and they don’t rely on a US recovery, just a decent world economy.

[Red in Blue PA]

Invest in AMMO.

When the dollar collapses and China no finances our spending sprees, riots in the streets are likely, as many in this country have an entitlement mentality.

Gold has one purpose.....ammo has several.