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Generally speaking, companies with solid financial positions make safer investments than those with weak balance sheets. That said, convertibles issued by high-quality companies are generally expected to offer lower coupons and smaller yields when compared to weaker companies. This quality/yield dynamic, however, isn’t always the case. Indeed, there are some high-quality issues, such as Alaska Communications (ALSK), Universal Corporation (UVV), and Apollo Investment (AINV) that have high-yielding convertibles.
Convertible bonds are hybrid between stocks and bonds. Owning convertibles that are sensitive to the movement of their issuing company’s common stock is a way to potentially increase return and reduce risk compared to owning only the common stock. AGCO Corp. (AGCO), Tenet Healthcare (THC), and Victor Group (VGR) all have convertibles with so called favorable equity participation.