The bond was originally offered at par of $1,000 with a coupon of 3.2%. It was supposed to be rock-solid safe. It was owned by nervous nellies and insurance companies and foreign governments as a store of wealth...all playing defense, not offense.
But then bad things happened to the bank who issued those bonds. Bad trades, fraud, and that whole ignoring-of-the-internet thing. So the creditworthiness behind the bond plummeted, and it now trades for $300, still with that same $32 a year coupon. Only now, the bond is a high yielder..."accidentally"...and yields over 10%.
The same can happen to dividend-paying equities. All is grand and safe and secure and gravy...until it's not.
Related or Semi-related Video
Finance: What is a Fallen Angel?1 Views
Finance a la shmoop what is a fallen angel? oh oh so sad I was once loved as [Sears crying]
were we all we were angels we floated way up here above the clouds above the
hundred times earnings high multiple-o- sphere but then we stumbled we failed
the market turned the environment saddened competition came and we did not
adjust so we fell as we missed our earnings numbers again and we missed
them again and again yeah it was just like that
a fallen angel is a company that used to be loved by everyone on Wall Street it
was the next Google the next Facebook the next Amazon heading oh so high to [Sears rocket flying in the sky]
the sky with no ceiling in sight but then well the ceiling actually came into
sight and got hit and the company missed a quarter and the multiple of earnings
the stock traded at got hit and the company fell again and again and again
and each time flew lower to the ground from the lofty lovely views of the
hundred X club a hundred times earnings club that's a very high multiple to be
now single-digit world of boring companies at six seven eight times
earnings yep no banker love barely any coverage even on Wall Street like nobody
even bothers to write about the companies anymore [Newspaper article appears]
it's just a bunch of vultures picking at their wings...hey! stop that yeah well
maybe someday they'll figure things out and you know get back up there where we
belong or where we used to or something like that it's so sad for now well
they're just hoping their wings grow back you know like these guys are hoping [Fallen angel companies grow wings]
yeah keep hoping there Sears
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