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.

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Bloomberg’s Chart of the Day

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Sources:
Reversal of Fortunes Between Stocks and Bonds
RANDALL W. FORSYTH
Barron’s, NOVEMBER 19, 2008
http://online.barrons.com/article/SB122704724304638861.html

S&P 500 Payout Tops Bond Yield, a First Since ‘58: Chart of Day
David Wilson
Bloomberg, Nov. 19 2008
http://www.bloomberg.com/apps/news?pid=20601213&sid=a7Hzm5Q34VDk&

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