S p 500 dividend yield vs 10 year treasury chart
Interest rates are hitting fresh, all-time lows due to coronavirus fears hitting an economy that had previously been quite strong. The Year U. Treasury note yield went below. Treasury bond yield, but it did not stay there long. Investors forecasted severe dividend cuts, which pushed dividend yields up just as Treasury rates were plummeting. Both yields normalized as realized dividend cuts brought down dividend yields and improving economic conditions pushed Treasury rates up.
A History of the S&P 500 Dividend Yield
Dividend yield - year spreads remain even wider in Europe and Japan than in the US, and worth checking when deciding on the US vs. This article shows 5 simple charts explaining why now is a good time to significantly reduce exposure to all US bonds, including treasuries, and buy quality equities.
Of course, these two investments are meant to represent bonds and stocks, respectively, but the latter could refer generally to risky assets that may fluctuate in price, but generally pay rising levels of income over time.
Since the late s, when year US treasury yields seem to have "permanently" crossed above stock dividend yields, this choice generally appeared as a tradeoff between:. The most memorable example, to me at least, of stocks underperforming bonds over a year period has been Japan over the past 30 years since , which could be described as a "deflationary depression. Several times in my career so far, I have heard investors tell me that "back in the day," most stocks had to yield more than bonds to compensate investors for taking the risk of owning stocks, and since then, stock markets "lost their way" by focusing on price appreciation over dividend growth.
It seems the "good old days" where stock dividend yields were well above year bond yields persisted for much of the first half of the 20 th century, with a very brief exception in just before the great crash that year. In much of the post-WWII era, bond yields were persistently higher than stock yields until very recently, which can be interpreted as an era of expansion, reinvestment, and expectations of capital appreciation.
Since I look at stocks as very long-term investments, my preference is to compare stock yields to year, not year, treasury yields, which unfortunately I haven't found a good pre data source for. As more recent and more easily tradable benchmarks for the yields between year government bonds versus US stocks, we compare the following two ETFs:. This second chart shows their dividend yields touching in the crash of , and about to cross again this month.
Note that dividend yields are trailing numbers, which is why the TLT yield on this chart is still significantly higher than the latest yield of 1. Also note that TLT holds a portfolio of treasuries maturing between 20 and 30 years, so its reported dividend yield a few months from now may be below the year yield by that time. Data by YCharts. CNBC reported a brief, shallower crossing late last year, and this time the crossover seems deeper and likely to last longer.
I also plotted the Eurozone and Japanese year yields above so that we can compare against dividend yields of these two other major developed stock markets, plotted in the fourth chart below. The benchmarks for these dividend yields plotted below are:. I would compare VGK's 3. In both cases, the significantly higher yield from stocks implies that dividends would need to decline even more dramatically than in the US for stock buyers in these markets to end up worse than bond buyers after 30 years.
I generally recommend hedging currency risk for foreign bonds, but not for foreign stocks, as equities in any economy earn their return on invested capital minus the rate at which they borrow, and are often to increase these profits to more than offset declines in their currency.
I mention this return on invested capital metric because although these foreign yield spreads are much higher than in the US, the profitability ratios of US companies are high enough for me to want to retain a good allocation to high yielding, high-quality US equities.
Although I have so far focused on nominal yields, the year yield that matters most to most long-term investors is the year real yield. Since then, the yield on year inflation-indexed treasuries reached a low level of just 0. As captured in the chart, the year real yield more than tripled over the last week to 0.
That steepness could also be seen as a sign to sell the year and buy the year if this spread reaches record levels, sometimes called a "flattening" trade.
When real bond yields are higher and yield curves are steeper, I find it important to include some allocation to longer-dated bonds to both enhance returns and balance out risks of stocks. Medium-term government bonds tend to serve as more closely traded "recession insurance," while the year tenor is meant to span several credit cycles.
For years, I have avoided buying negative-yielding European and Japanese bonds, and preferred to instead buy equities in highly profitable companies able to borrow at very low or even negative rates. It should be common sense to borrow at low rates and lend at high rates, which is why I would wonder why anyone would buy negative-yielding bonds unless they had to, so long as there are quality higher-yielding alternatives.
Over many retirement investors' time horizons, the year yield serves as an important "over-under" benchmark of how much other investments would have to earn for you to be better off than buying bonds. For this reason, I am reducing US treasury exposure significantly and increasing allocation to equities at these levels.
Get inspired with your free trial to Long Run Income. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: We maintain a portfolio of options where our delta to TLT is currently negative, but this and other delta exposures may change rapidly without notice.
With the S&P 's dividend yield currently at %, Treasuries are back to For reference, below is a chart of this spread over the last 10 years. This first chart plots the dividend yield of the year US treasury versus the dividend yield of the S&P stock index. Several times in my.
The reason why I prefer owning real estate and starting a business is that I can do things to help improve my chances that the assets will perform. I can spend more time building rapport with readers. With a real estate investment, I can paint the interior and exterior, refinish the floors, change the fixtures, landscape the front and back yards, expand the livable space, keep up with market rents, find higher-paying tenants and so forth. Then when rates get low enough, I can refinance my mortgage to improve my cash flow. But with stocks, you and I are minority investors with no say.
For the first time since the financial crisis, stocks are earning more for investors than key long-term Treasury bonds. The U.
This week saw the reversal of a longstanding relationship between two yields — with potentially bearish implication for bonds. Bonds in the late s entered a devastating bear market that lasted more than two decades, as bond yields rose by several orders of magnitude — as you can see from the accompanying chart.
Dividend Yields vs. Bond Yields: An Easy Pick
Data in this graph are copyrighted. Please review the copyright information in the series notes before sharing. Source: Federal Reserve Bank of St. Starting with the update on June 21, , the Treasury bond data used in calculating interest rate spreads is obtained directly from the U. Treasury Department.
S&P 500 Yield Above 30-Year U.S. Treasuries Sign To Long-Term Buyers
That is a record low yield for the 10 Year. That sharp divergence in yields is shown in the chart below. Bespoke Investment Group provides some of the most original content and intuitive thinking on the Street. Founded by Paul Hickey and Justin Walters, formerly of Birinyi Associates and creators of the acclaimed TickerSense blog, Bespoke offers multiple products that allow anyone, from institutions to the most modest investor, to gain the data and knowledge necessary to make intelligent and profitable investment decisions. Along with running their Think B. By Staff of Bespoke Investment Group. Click on image to enlarge. How did you like this article? Let us know so we can better customize your reading experience.
Treasury by its highest margin in nearly five decades after a flight to safe-haven assets compressed government bond yields to record lows.
Dividend yields from blue-chip U. However, the rate of dividend increases was the slowest since , when the country officially exited the Great Recession.
S&P500 Dividend Yield vs 10 Year Treasury
The big drop in Treasury yields seen for most of made equities more and more attractive from a dividend yield perspective. This is one of the reasons a sector like Utilities had been performing so well. But the spread between the two flipped again last week as the Year yield spiked back up to 1. For reference, below is a chart of this spread over the last 10 years. Bespoke Investment Group provides some of the most original content and intuitive thinking on the Street. Founded by Paul Hickey and Justin Walters, formerly of Birinyi Associates and creators of the acclaimed TickerSense blog, Bespoke offers multiple products that allow anyone, from institutions to the most modest investor, to gain the data and knowledge necessary to make intelligent and profitable investment decisions. Along with running their Think B. By Staff of Bespoke Investment Group. How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves. Leave a comment to automatically be entered into our contest to win a free Echo Show.
S&P 500 Dividend Yield:
Dividend yield - year spreads remain even wider in Europe and Japan than in the US, and worth checking when deciding on the US vs. This article shows 5 simple charts explaining why now is a good time to significantly reduce exposure to all US bonds, including treasuries, and buy quality equities. Of course, these two investments are meant to represent bonds and stocks, respectively, but the latter could refer generally to risky assets that may fluctuate in price, but generally pay rising levels of income over time. Since the late s, when year US treasury yields seem to have "permanently" crossed above stock dividend yields, this choice generally appeared as a tradeoff between:. The most memorable example, to me at least, of stocks underperforming bonds over a year period has been Japan over the past 30 years since , which could be described as a "deflationary depression. Several times in my career so far, I have heard investors tell me that "back in the day," most stocks had to yield more than bonds to compensate investors for taking the risk of owning stocks, and since then, stock markets "lost their way" by focusing on price appreciation over dividend growth. It seems the "good old days" where stock dividend yields were well above year bond yields persisted for much of the first half of the 20 th century, with a very brief exception in just before the great crash that year.
