Bonds vs dividends.
A story about folks snapping up Wal-Mart bonds.
Take a look at the bond issue. Wal-Mart sold $750 million worth of three-year bonds paying 0.75% a year. It sold $1.25 billion of five-year bonds paying 1.5%, $1.75 billion of 10-year bonds paying 3.25% and $1.25 billion of 30-year bonds paying 5%.
Remember that those bond coupons are subject to two hidden costs.
First, bond interest is taxed as ordinary income. That means that if the bonds are held in a taxable account, they will be taxed up to 35% right now -- and as high as 39.6% next year if the Bush tax cuts expire as planned.
Second, bonds face a serious risk from inflation. Who wants a piece of paper paying 5% a year for 30 years if inflation jumps to 7%? Nobody. If that happens, the price of the bond would plummet.Compare that to common shares of Wal-Mart and their dividend.
