I was looking into purchasing some 10 year bonds and stumbled across an article in Fortune that talked about bank stocks. Banks are very cheap at the moment and some of them are paying dividends that are as good, if not better than the 10 year bond. The 10 year pays about 5% and the income is taxes at normal rates. Today, Bank of America yields 4.5% and the company is expected to raise its dividend to 5.1% later this month. Other banks have similar profiles. Dividends are also taxed at a lower rate, making the net return higher than 10 year bonds.
On top of that, bank stocks have very low PEs and are relatively inexpensive. The public has broadly discounted the banking sector because of the sub-prime loan meltdown but companies like Citibank and Bank of America do not have wide exposure to this market. If they did, they long ago packaged the loans and removed the risk from their balance sheets.
A great dividend, favorable tax treatment, and upside potential make banking stocks a decent alternative to a 10 year bond.
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