Fishing for 'The Six Best U.S. Dividend Stocks'

There is a running argument regarding whether or not dividend paying stocks are interchangeable for bonds. The pro-bond side argues in favor of the stability of bond prices and the predictability of bond interest. The pro-dividend paying stocks side argues in favor of the potential for increasing dividend income coupled with possible capital appreciation. In the end, it all comes down to the question of risk versus reward.Uncharacteristic bond riskIn the spirit of full disclosure, we currently favor the dividend paying stock position and for the present eschew investing in bonds. Our position is predicated on the idea that because interest rates are so low the risk profile of bonds in general has become uncharacteristically high. The following graph shows that 10-year treasury note rates have been falling since the mid-1980s. Furthermore, although they rose from 1960 through the mid-1980s, today's 10-year treasury bond is lower than it was during the mid-1960s.History of 10-Year Treasury Bond Rates(Click to enlarge)During periods of falling interest rates, bond prices will be stable since the price of pre-issued long-term bonds will tend to rise prior to maturity. Of course, as the bond gets closer to maturity, the price will move to par value. Conversely, during periods of rising interest rates the price of pre-issued long-term bonds will fall in order to make them competitive with new bonds being issued with higher interest rates. Another way to think about this is to understand that when interest rates are very high bonds are cheap and vice-versa.... Read more