S&P500 Dividend Yield vs 10 Year Treasury

Randall Forsyth of Barrons pointed out that the dividend yield on the SPX has surpassed the yield on the 10 year, and asked a few people what this might mean.

Fascinating data point. I wrote back that this tells us a few things:

1) After a 47% freefall, Stocks have gotten relatively cheap, at least on the basis of this one metric;
2) Yields are unusually low, thanks to Fed rate cutting and a flight to safety (i.e., US Treasuries);
3) Despite the earnings carnage in the financial sector, there are many well run companies selling goods and services profitibly.
4) You can fake earnings through accounting hankypanky — but you cannot fake dividends.
5) My only caveat — if the recession is far deeper and more prolonged than even the most pessimistic forecast is for, some dividends may end up getting cut.


Bloomberg’s Chart of the Day


Reversal of Fortunes Between Stocks and Bonds
Barron’s, NOVEMBER 19, 2008

S&P 500 Payout Tops Bond Yield, a First Since ‘58: Chart of Day
David Wilson
Bloomberg, Nov. 19 2008

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