Thursday, April 19, 2012

Genworth GNW bond. Can you make 8% on investment grade bonds?

Official Genworth Financial logo
Official Genworth Financial logo (Photo credit: Wikipedia)
Dear Income investors,

Today we have a very nice investment grade bond available.  You'll see it in the WSJ and you can look at today's trades on the  SIFMA site or if you are a Schwab customer you can research and buy the bond through their online bond desk.

Eight percent is a yield I can live with over time provided the underlying company is in good shape and provided I buy at par or discount to par.  Prices on this bond today range from $97 to $99.

The bond is a Genworth (GNW) 2021 bond with a coupon of 7.625%.   The bond is callable but Genworth would have to pay you $100 per bond plus a 50 basis point over Treasuries to do so.

Genworth's financials have improved significatly during the last couple of years.  They have a lower debt to equity ratio than their peers.  Interest coverage is expected to be 2 times and this is pretty good.  Based on 2011 data interest coverage is EBIT of $820,000 (m) divided by Interest expense of $506,000 (m) or a ratio of 1.62.

The CUSIP for this bond is 37247dap1.  Remember that although this bond is rated investment grade it is on the lower end of that scale.  However, you do not get an over eight percent yield in today's environment without some risk.

Consider this bond for the income producing portion of your portfolio.

Very Truly Yours,

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