A Bond Yield Bonanza for These Companies

Johnson & Johnson (NYSE: JNJ) put its AAA bond rating on the table last week and crushed McDonald’s (NYSE: MCD) recent bond yield record by issuing a 10-year with a coupon under 3% priced to yield 3.15% and a 30-year with 4.5% coupon, 4.63% yield. How good is that? At the 10-year yield, Johnson & Johnson could improve cash flow by issuing bonds and buying back its own higher yielding stock. Since interest expense reduces taxable earnings and dividends don’t, the math is close, even at the 30-year yield. To find companies that could take advantage of the cheap money, I searched for A or better bond ratings and debt with 6% or higher coupon maturing within the next five years. Some of the hits are shown in the table below along with the range of coupon rates, amount of debt maturing in the next five years, and estimated annual interest savings when the debt is rolled over. The assumed rollover rates for the savings estimates are 3.25% for 10-year and 4.75% for 30-year bonds. Annual savings would be even higher with shorter-term debt.... Read more