With corporate bonds slowly emerging from Depression-era pricing scenarios, there are still bargains out there in 2009 with many household names providing high yield income with seemingly manageable risk. In reviewing the hundreds of high yield corporate bonds yielding over 8% (I chose this yield since it is roughly what stocks return over long time periods and any increase in bond value over time is a bonus!), I screened out companies below a BB rating (borderline investment grade/speculative non-investment grade), the majority of the Financials, companies who seem to be teetering on a credit rating reduction or are in the news for significant solvency troubles and I focused on relatively large household names that will probably surprise you to see such high yields. Over a long period of time, capturing a recurring 8% yield, plus the likely increase in bond value as fears abate over financial conditions would make for a great double digit return in a self-directed high yield IRA account.
15 High Yield Corporate Bonds
Issue Maturity YTM(%) Current Yield(%) Fitch Rating
XEROX CAP TR I 2027 10.436 9.938 BBB
INTL PAPER CO 2038 9.796 9.721 BBB
WEYERHAEUSER 2025 10.237 9.666 BBB
CHESAPEAKE ENERGY 2015 9.093 9.337 BB
MOTOROLA INC 2031 9.473 9.323 BBB
GOLDMAN SACHS CAP II 2099 9.270 9.269 A
SPRINT CAP CORP 2028 9.626 9.046 BB
ALTRIA GROUP INC 2038 8.845 8.923 BBB
ROYAL CARIBBEAN 2011 8.899 8.772 BB
VALERO ENERGY 2039 8.579 8.711 BBB
SEAGATE TECHNOLOGY 2016 11.163 8.662 BB
DOW CHEM CO 2029 8.379 8.172 BBB
SUNOCO INC 2015 5.880 8.131 BBB
HUMANA INC 2018 9.046 8.113 BBB
TIME WARNER 2013 5.292 8.111 BBB
Without performing a detailed solvency analysis on each of these corporate bond issuers, I’ll just say that while these companies may not be lighting the world afire in terms of financial strength, share price appreciation and future growth companies, I don’t see any of them as a candidate for insolvency. I included Goldman Sachs even though it is a Financial since they’ve demonstrated best-in-class performance in both managing their risk during the collapse in mortgage backed securities (at least better than their competitors given their potential exposure and the government’s hand-out by saving AIG who ended up paying GS a tidy sum) and they’re at the front of the line in repaying TARP funds – share price appreciation seconds this notion.
Investing in corporate bonds is not as simple as your typical stock or ETF. There are some ins and outs of corporate bonds you should understand before embarking on building a high yield corporate bond portfolio. Sometimes, buying an individual bond can be quite expensive in both net outlays, plus fees. Additionally, there are often several bonds for the same issuer. For that reason, for my high yield self-directed IRA, I actually purchased the High Yield Bond ETF which has rallied since entry, plus still sports a double digit yield to boot. For tax-free income, you may also want to consider high yielding Muni Bond ETFs as well. For more details and basics on bonds, I refer you to more on corporate bonds.
For Savvy Bond Investors – What are your Favorite High Yield Corporate Bonds?
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