When all is right in the world, investors have to make a choice between the steady income gained from purchasing bonds, or forfeit this steady income for the growth potential of stocks. Since the 1950’s, this has been true, but recently, as stock prices have leveled out and Treasury rates have dropped, the U.S.markets have given us something that experienced investors haven’t seen for a long time. Currently, the average dividend yield on stocks in the Standard & Poors 500 index (1.95%) has moved up past the yield on 10-year Treasury bonds (currently hovering around 1.93% a year).
In other words, investors can get the potential growth of a stock investment and be paid more in dividend income, than they would get from government bonds.
The only issue is, we do not know how long this odd phenomenon of being able to buy stocks that have higher yields than Treasury bonds will last. Dividends are still fairly low by historical standards, and any uptick in stock prices would drive stock dividend yield downward. Similarly, analysts keep telling us that Treasury rates can’t keep dropping forever.
So for now, enjoy an unusual market opportunity that investors last experienced years before Evlis Presley first performed his hit single “Hound Dog.” This is an interesting moments in investment history that you probably have not see covered by the investment press. Enjoy the ride.