BONDS OR DIVIDENDS?

Why Have Investor’s Historically Preferred Bonds?

– Traditionally known as a “safe investment”

– Typically less volatile than stocks

– Offer regular interest payments

– Have first priority in any liquidation

The Safer Alternative to Bonds. Jim Royal (September, 2011)

Is There Risk With Bonds?

– Types of risks associated with bonds:

Interest rate risk, reinvestment risk, inflation risk, credit/default risk, rating downgrades and liquidity risk.

The Safer Alternative to Bonds. Jim Royal (September, 2011)

Trends in Bonds

• Current trends within the bond environment:

• Low interest rates: Interest rates below the level of inflation, making investors lose purchasing power as bonds decline in value when rates rise again.

• 100-year bonds: Although these bonds offer higher interest rates, there is principal and business risk.

• Weak bond covenants: Bond investors may accept weaker lending terms.

The Safer Alternative to Bonds. Jim Royal (September, 2011)

YIELD OF S&P500 STOCKS vs. 10-YEAR TREASURY YIELD

Source: AAII, February 2017

An Investor in Dividend Stocks or Bonds Will Have To Deal With Principle

Fluctuations In Either Investment…

So, In This Interest Rate Environment, Which Would You Rather Own, Dividend

Stocks or Bonds?

**In Both Cases, The Investor Has To Hold The Investment To Get The Yield.

Average Dividend Yield from Indices, as of June 2017

Indexarb.com, May 31st, 2017

Index Aggregate Value of Index Components

Aggregate Dividends Dividend Yield (%)

[S&P and Nasdaq in millions.

[Next four quarters] [Aggregate Dividends divided by Aggregate Value]

Dow Jones in units.][S&P and Nasdaq in millions.

Dow Jones in units.]S&P

20,705,401.926 431,625.479 2.08

[Floating Capitalization Weighted: stock price and per-share dividend are multiplied by the number of floating shares and then scaled to millions.]Nasdaq 100

8,203,609.800 95,541.068 1.16

[Modified Cap. Weighted: stock price and per-share dividend are multiplied by the Nasdaq weight factors and then scaled to millions.]Dow Jones

3,070.750 77.724 2.53

[Price Weighted: Sum of prices and dividends of stocks in the DJIA index.(N.B. Divide stock price sum by the DJIA divisor to get the index value.) ]

10-Year Treasury Yield

2.21

Yahoo! May 31st, 2017

Historical Comparison: Top 25 Dividend Stocks Q2-17 vs. 10-Year Treasury Yield

Source: Yahoo.com

3.90

2.35

TOP 25 DIVIDEND PORTFOLIO PERFORMANCE - % RETURN

Source: Yahoo Finance

What about Corporate Bonds?

CORPORATE BONDS

• Nominal yields on Treasuries and corporate bonds have dropped since recession

• Maturity timeline required

• In inflationary environment, bonds tend to do poorly.

• Bond interest is taxed as high as 35% rate

DIVIDEND STOCKS• Dividend yields of high quality

equities have risen

• Companies with strong balance sheet and stable earnings will sustain in an economic downturn

• Equities will hold up much better in an inflationary environment

• Current tax rate for qualified dividends is 15% or 0%

• Potential for capital growth

• Advantage of possibly raising current yields over time

Seeking Alpha, June 2011

Average yield-to-maturity for bonds= 3.52%, despite having an average coupon of 6.42%

Average dividend yield of the same corporate borrowers is 4.03%

Seeking Alpha, June 2011

Key in a Dividend Strategy

• Search for companies with strong fundamentals

• Select stocks with stable dividend yield and growth

• Unlike the bonds that are difficult to price, stocks are much easier to price

• Underlying stock offers growth potential

• Reinvest the dividends

• Quarterly screening process for quality dividend stocks

• Combination of high/low dividend yield, high/low dividend growth, and payout ratio

As of: 6/1/2017

RANK # TICKER COMPANY Growth Score Yield Score Dividend YieldTOTAL SCORE Beta Rf* Rm CAPM

1 MIC Macquarie Infrastructure Corp 63.1667 95.00 6.79 79.08 0.88 0.73 0.7009 0.70442 VLO Valero Energy Corporation 58.8889 91.00 4.15 74.94 1.38 0.73 0.7009 0.68983 RAI Reynolds American, Inc. 62.6667 87.00 3.06 74.83 0.39 0.73 0.7009 0.71864 BGCP BGC Partners, Inc. 55.1667 94.00 6.13 74.58 1.32 0.73 0.7009 0.69155 ENB Enbridge Inc (USA) 55.8889 91.00 5.82 73.44 0.63 0.73 0.7009 0.71166 QCOM QUALCOMM, Inc. 56.1944 90.00 3.98 73.10 1.27 0.73 0.7009 0.69307 LAZ Lazard Ltd 57.7500 88.00 3.68 72.88 1.93 0.73 0.7009 0.67388 KKR KKR & Co. L.P. 56.9167 88.00 3.65 72.46 1.64 0.73 0.7009 0.68229 CSCO Cisco Systems, Inc. 57.7222 87.00 3.66 72.36 1.40 0.73 0.7009 0.6892

10 GIS General Mills, Inc. 57.3611 87.00 3.39 72.18 0.57 0.73 0.7009 0.713411 ORI Old Republic International Cor 54.8056 89.00 3.89 71.90 1.11 0.73 0.7009 0.697712 IP International Paper Co 54.3056 88.00 3.47 71.15 1.49 0.73 0.7009 0.686613 GSK GlaxoSmithKline plc (ADR) 49.2500 93.00 4.49 71.13 0.98 0.73 0.7009 0.701414 ABBV AbbVie Inc 49.5556 90.00 3.88 69.78 1.54 0.73 0.7009 0.685115 IBM International Business Machine 52.8333 86.00 3.95 69.42 0.96 0.73 0.7009 0.702016 MSFT Microsoft Corporation 57.1111 81.00 2.22 69.06 1.04 0.73 0.7009 0.699717 KO The Coca-Cola Co 49.7222 88.00 3.26 68.86 0.67 0.73 0.7009 0.710518 RDS.B Royal Dutch Shell plc (ADR) 41.4444 96.00 6.65 68.72 1.15 0.73 0.7009 0.696519 INTC Intel Corporation 52.1944 85.00 3.01 68.60 1.01 0.73 0.7009 0.700620 GM General Motors Company 45.1944 90.00 4.53 67.60 1.28 0.73 0.7009 0.692721 WFC Wells Fargo & Co 53.1111 82.00 2.91 67.56 0.94 0.73 0.7009 0.702622 JPM JPMorgan Chase & Co. 52.3056 78.00 2.38 65.15 1.44 0.73 0.7009 0.688023 GE General Electric Company 43.1944 86.00 3.51 64.60 1.18 0.73 0.7009 0.695624 WMT Wal-Mart Stores Inc 37.6667 85.00 2.61 61.33 0.11 0.73 0.7009 0.726825 CS Credit Suisse Group AG (ADR) 24.5833 92.00 4.95 58.29 1.49 0.73 0.7009 0.6866

Beta Rf Rm CAPMCurrent

Portfolio Yield: 4.001 1.11 0.73 0.7009 0.6976% Per Month

Rf Treasury Bill Rate - 4 weeks 5/31/2017 CAPM of Portfolio 8.70% AnnualizedCurrent Portfolio Yield 4.00%

* Growth and Yield Score based on 2Q/2017 Screening Expected return of the Portfolio 12.70%

Capital Asset Pricing Model (CAPM)

• A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.

• General idea behind CAPM: investors need to be compensated in two ways: time value of money and risk. – The time value of money is represented by the risk-free (rf) rate in the formula and compensates

the investors for placing money in any investment over a period of time. – The risk is represented by beta and calculates the amount of compensation the investor needs

for taking on additional risk (risk premium)• The CAPM says that the expected return of a security or a portfolio equals the rate on a risk-free

security plus a risk premium.

Investopedia, October 2013

No strategy can guarantee profit

or protect against a loss.

Past performance is not indicative

of future results.

BigFoot Investments (a DBA of Lee Johnson Capital Management) does not promise, guarantee or imply that you will improve your operation, or increase your revenues. As with any business, earnings potential and successful or unsuccessful use of BigFootInvestments’ products and materials will widely vary among our customers depending on many factors, including but not limited to, the customer’s finances, knowledge and skill set, creativity, motivation, level of effort, individual expertise and as such we do not guarantee your success or income level.

The information conveyed by BigFoot Investments, as well as the information otherwise conveyed in these materials is intended to provide you with basic instruction regarding your business or operation. BigFoot Investments does not guarantee any results or returns based on the information you receive. Past performance or examples of other’s performance is no indication or guarantee of your anticipated future results, and individual results may vary.

We are not responsible for any success or failure of your business if you implement the information you receive from us. We provide a tool that you can use to try to improve the operations of your business. All information contained or received through the use of our materials is provided “as is” without warranty of any kind. We hereby disclaim all warranties with regard to the information contained in our materials including without limitation all expenses, statutory and implied warranties of merchantability and fitness for a particular purpose.