Loews Chief Tisch Says Buy Exxon, J&J as Bond Yields Fall Close to `Zero'
“There are equities that are rather intriguing, especially when compared to fixed income,” Tisch said today in an interview at Bloomberg headquarters in New York. “When I look at what we’re earning on T bills and round it to the closest whole number, it’s zero.”
Yields on two-year Treasuries dropped to a record low of 0.45 percent yesterday amid a slowing growth in the economy and a dip in expectations for inflation. Tax-free yields on municipal bonds are at their lowest in four decades, according to Thomas Doe, chief executive officer of Municipal Market Advisors.
“We’re actually investing in stocks, in large cap, good dividend-paying stocks,” said Tisch, 57. “Who would have thought five or 10 years ago that a 3 percent yield on a stock would be a good yield? But actually today it’s a very good yield.”
Tisch oversees a portfolio of companies spanning insurance, hotels and offshore oil drilling. CNA Financial Corp., the property-casualty insurer 90 percent owned by Loews, has been paring holdings of Treasuries and municipal debt while adding corporate bonds. The Chicago-based insurer had about $7.6 billion in municipal debt as of June 30, down from $8.6 billion 18 months earlier.
Holdings of Treasuries and agency debt fell to about $150 million from more than $2.8 billion, according to regulatory filings. Corporate debt investments surged to $19.7 billion from $13 billion.
“We’re in the insurance business, and like it or not we have to have a fixed-income portfolio,” Tisch said. “Right now we see corporate debt as the cheapest sector.”
Exxon Mobil’s dividend yield, or the ratio of payout to share price, is 3 percent based on yesterday’s closing price of $58.94 and a quarterly payment of 44 cents a share. Irving, Texas-based Exxon, the largest U.S. oil company, had slipped 14 percent this year before today.
J&J, the maker of Tylenol and Listerine, has a 3.7 percent dividend yield based on yesterday’s closing price of $58.01. The New Brunswick, New Jersey-based company had declined 9.9 percent this year. Both Exxon and J&J have Aaa ratings from Moody’s Investors Service, the highest grade.
Holders of municipal bonds aren’t always getting paid enough to shoulder the risk of default, Tisch said. Billionaire Warren Buffett and Thomas Wilson, CEO of Allstate Corp., have warned that public officials may have difficulty repaying debts as the economic slump curbs tax revenue.
“Municipal bonds yield just over 2 percent and, man, I think some of the credits could have some trouble, Tisch said. ‘‘When you look at the state of some of the state and city finances it sort of makes Greece look like it’s a solid credit.’’