She bought LO and HI bonds. They both mature in 10 years. The HI bonds have a coupon of 6% and are priced just under par. They are also currently callable. They also contain a put provision in the event of death which for someone in their 80s is valuable to their estate.
LO's bonds are priced at 10o.66 and have a coupon of 6.875%.
One company makes coffins and the other company helps put you in them.
LO bonds? Is it time to sell them?
Current price 122.3 per bond or over 22% above par.
She's up 21.5% on her money in three years and she's earned about 6.75% in interest per year.
So she's earned about 14% per year. I'm may sell them in the next few months if she needs cash and put 70% of the proceeds in 10 year CDs and the balance in equities. They currently make up about 6% of her net worth.
LORILLARD TOBAC 6.875%20BONDS DUE 05/01/20
Thanks again LO for the bond interest. Grandma as you may know also owns the stock which should raise their dividend again next February by another 10% plus.
LORILLARD TOB CO DUE 05/01/2020 6.875 REG INT ON 10000 BND REC 10/15/12 PAY 11/01/12
LO announced the issuance of new bonds that mature in 5 years and only yield 2.3%--"GREENSBORO, N.C., Aug. 16, 2012 /PRNewswire/ -- Lorillard, Inc. (LO), the third largest manufacturer of cigarettes in the United States, today announced that it has priced an underwritten public offering of an aggregate principal amount of $500 million 2.300% senior notes due 2017 through its main operating subsidiary, Lorillard Tobacco Company, and guaranteed by Lorillard, Inc.
Lorillard, Inc. expects to close the sale of the notes on August 21, 2012, subject to customary closing conditions. The net proceeds from the offering will be used for general corporate purposes, which may include, among other things, the repurchase, redemption or retirement of securities including its common stock, acquisitions, additions to working capital and capital expenditures."
Note: LO shareholders receive a 5% dividend that should go up 10% in September which is why LO is among Grandma's top 5 holdings. If she were looking to add to her LO holdings it would be through its stock rather than its new bond offering because it yields twice as much and is likely to double over the next 6 years due to the positive effects share buybacks have on its earning's growth.
Correction-the dividend will not go up for another 6 months--"GREENSBORO, N.C., Aug. 15, 2012 /PRNewswire/ -- Lorillard, Inc. (LO), the third largest manufacturer of cigarettes in the United States, announced today the declaration of a quarterly dividend on its common stock in the amount of $1.55 per share, payable on September 10, 2012 to stockholders of record as of August 31, 2012."
LORILLARD TOBAC 6.875% BONDS DUE 05/01/20
Late last year Grandma doubled up on these bonds when the price dropped down to just above par value. They're back above 10% over par and she received a large interest payment last week.
Thank you LO.
Grandma also had a CD with a coupon of 5.15% called a year early but she was payed a 3% premium. I've never seen this done before.
Grandma is an idiot. The principal on those bonds will continue to go down in value as rates rise. Why buy bonds when the FED has a mandate to prop up equities in order to bailout the pension funds.
The FED will continue the equity bubble until the Dow hits 12,000, and then hyper-inflation will kick in and drive the Dow up over 18,000.
I like the metaphor though, one bond makes the coffin, the other bond will put you in it.
It's either these bonds or more treasuries that pay next to nothing.
Grandma lives on Social Security plus the $1500 per month she receives from her brokerage accounts.
She has less than half a million dollars to work with yet her principal has grown the last 5 years. I wouldn't say she's an idiot.
She also makes great homemade bread.