15 High Yield Corporate Bonds Raising Eyebrows

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?

Tagged as: Corporate Bonds, High Yield