Stock Yields Outpace Bond Yields: First Time Since 1958

For the first time in 50 years, the S&P 500 average dividend yield has risen above the 10-year Treasury note interest rate. Wednesday's close saw the bond yield jump slightly to 2.66. However the S&P yield is now 3.3 in favor of equities. Historically, the two asset classes competed for investor's money, with bond interest beating stock dividends, resulting in an average spread between the two investment vehicles by an amount of 3.7 points in favor of bonds.So are stocks a better choice now? Well they still generally are, but they are more volatile than they have been for a long time. When investors see substantial stock price swings, they expect the lack of stability to be offset by a greater dividend rate. This in turn pressures companies to increase their dividends. For the past half century, stocks have enjoyed a steady rise in prices - at a pace of about 7 minimum to go before stocks will match bonds in terms of return on risk."Dividends, along with bond interest, can play an important role in planning for retirement, but a retirement savings program should not depend completely on this income. Market forces - such as the current recession - can alter companies' dividend allocation. Although 212 companies have increased their dividends this year, tight credit markets have forced businesses to retain $648 billion in earnings (up from last year), and 41 companies - including 35 financials - have cut a record $37.9 billion in dividend payouts. Thus, there is no guarantee that stockholders will see dividend yields shooting up anytime soon. In fact, analysts expect fourth quarter dividend payments to decline by 10% from 4Q 2007, the worst year-over-year slide since - interestingly - 1958.--Jack Sarkissian is a senior financial analyst at Ameri-Financial. Visit for news and updates on personal finance that you cannot afford to miss. Use our free financial analysis tools online to establish your financial goals and reach them faster.Source:

Related Posts :

No comments:

Post a Comment