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I have a Wide Range of Interests. As a Programmer: Programming, Web Development, Game Design, Internet Marketing, SEO Techniques.
As a Business Partner: Stock investing, Mutual Funds, Gold and Silver trading, Politics and News.
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Chris -Lethos- Bourton | lethos

This Stock Yields an INCREDIBLE 19%

Feb 24th 2011 at 8:48 AM

This Stock Yields an INCREDIBLE 19%

High yields are hard to find these days. A three-year CD is paying about 1.5% on average. A 10-year treasury bond is paying 3.5%. The dividend yield of the S&P 500 is just 2.1%.

So, in the current environment, is a 19% yield too good to be true?

Not for a company with earnings that grow as the yield curve steepens. A yield curve is the difference between short-term and long-term interest rates, and a steep yield curve occurs when there is a large disparity between these rates. Today's yield curve is historically steep and getting steeper because there are pressures keeping short term rates low and long term rates higher.

Short-term interest rates are near historic lows. The Federal Discount Rate (the interest rate that the government charges banks to borrow money, used as a benchmark for short-term rates) is currently just 0.75%. To add perspective, this rate was 6.25% as recently as 2007. The Federal Reserve has kept rates low to stimulate the economy since the financial crisis and has indicated that it intends to keep rates low for the near future.

Meanwhile, longer-term rates are on the rise as the dollar weakens and inflation fears grow.  The 10-year treasury has absolutely soared to a 3.5% yield from 2.5% less than six months ago. The Fed's continuing desire to stimulate the economyshould keep short rates low, and upward pressure on longer-term rates should continue for the foreseeable future.

With all this in mind, I think there is a way investors can get a 19% yield from the current dynamic. Here's how…

Read the juicy Details on Jutia Group


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