This week Verizon – the leading wireless provider in the US closed a bond deal that helped it to buy out Vodafone share of its business. The bond deal was capped at $ 49 billion but had orders up to $100 billion. The 30 year bond yield 6.5% and the 10 year bond was at 5.2 %. The existing US bond yields on a 30 year bond is 3.85% and a 10 year 2.91%.

When you look at another piece of infrastructure – in the 1870s and beyond millions – now billions of dollars went into the building of the railways across the US and around the world. Have you ever wondered why the the money flowed from Europe into railway bonds? The answer was high interest rates and a semi-government guarantee of the backing of the lands. In the case of the railways, most lines that were conceived and built were not profitable, but were given large land grants which under the correct conditions and overtime some could turn out to be income producing. For example, the railway lines which ran through coal country was a great idea – but someone had to set up the mines, do the mining and finally ship it before the railways would see any cash flow. Many railways ran out of time and went bankrupt, many needed to be restructured and over the last 100 years has evolved into the railway infrastructure that exists today. Investors were attracted by high interest rates in the 1870’s and 80’s and if you look around the world, in the last few years a number of institutions were bankrupt caused by high rates and the seemingly never ending task to attract more money to pay the rates. The industry changes but the reasons remains the same.

Linking to dividend paying stocks, as an investor you want high interest rates, as a payee you want low interest rates, however whatever the rate is the company has to have the financial ability to repay its loans. The homework of the dividend buyer is not just to buy the highest yields, but the most sustainable yields from a profitable company. There are numerous examples which allows one to have choice, pick well.

There are more questions than answers, till the next time – to raising questions