Buy Dividend Aristocrats, not Municipal Bonds

In a recent article in The Wall Street Journal by Mike Cherney, its was reported that yield-seeking investors were buying up municipal bonds. Cherney, in "Investors Chase Bargains in Munis," wrote that, "Municipal bonds have long attracted individual, or retail, investors because interest payments from them are generally exempt from interest payments." Individual investors would be far better off buying "Dividend Aristocrat" stocks such as Coca-Cola KO, Wal-Mart WMT, and ConocoPhillips COP and placing the shares in an individual retirement account. Dividend Aristocrats are publicly traded companies that have increased the dividend payment annually for at least 25 years. As detailed in another article on Benzinga, "The Enduring Appeal of Dividends," the dividend from a stock has provided more than 40% of the historic total return. With the dividend increasing every year, so will the total return. Do not expect the interest paid by a municipal bond to increase annually, if ever. To get the highest yield from a municipal bond, you have to buy the worst in the market. At present, that is debt from Detroit and Puerto Rico. By contrast, a Dividend Aristocrat is one of the best companies. Only a blue chip can afford to increase its dividend annually for more than 25 years. Just look at the events since 1988: the 1990 recession, the 2000 recession, the dot com bubble, and The Great Recession...not to mention a major terrorist attack on 9/11, the impeachment of an American president, and several wars involving US forces. Despite all of that, the income rose for the shareholders of Dividend Aristocrats. It is no wonder that legendary investor Warren Buffett is a major shareholder of Coca-Cola, Wal-Mart, and ConocoPhillips. If an investor is from Michigan and wants to rep Detroit, then Kellogg Company K and Dow Chemical DOW should be considered. Kellogg Company is headquartered in Battle Creek, Michigan. The Dow Chemical Company DOW is based in Midland, Michigan. Each has a very strong dividend framework, comparable to that of a Dividend Aristocrat. Kellogg Company has a dividend yield of 3%. The average dividend for a member of the Standard & Poor's 500 Index is around 1.9%. The five-year dividend growth rate for Kellogg is 5.01%. For Dow Chemical Company, the dividend yield is 3.29%. The growth rate has been more than 9% over the last 5 years for Dow Chemical. Whatever a municipal bond can do, a Dividend Aristocrat or similar stock can do much, much better. To gain a total return that is tax free, hold the equity in a retirement account. It is better to profit from the best stocks rather than hope to gain from the worst municipal bonds.