Beat Fluctuating Bond Yields With this Type of Company

Bond investors have been on a wild ride over the past year. Yields have fluctuated between around 0.5 percent and 1.75 on a 10-year US Treasury. While that entire range is historically low, the changes in those rates also create wild swings in bond prices.

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  • And with yields so low, there’s a type of company that stands out in the market today. That type of company is the dividend growth stock.

    These are a small group of companies that can grow the income they pay to shareholders no matter what the economy is doing. Even better, because they tend to raise their dividends over time, they’re superior to bonds which pay a fixed payout over their life.

    One recent dividend grower is The Hershey Company (HSY). The confectioner just raised its annual payout by 12 percent, to just over $0.90 per year.

    Despite that rise in yield, share have underperformed the overall market by about 10 points in the past year. The company sports revenue and earnings growth in the mid-teens, and has a solid profit margin for the food space.

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  • Action to take: At current prices, shares yield about 2 percent, with more room for higher dividend payouts in the future.

    Despite their underperformance relative to the market, shares started a strong uptrend in February that looks set to continue. Traders may like the November $185 calls, last going for around $4.40, which can likely generate mid-double-digit gains.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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