S&P 500 Dividend Yield Surmounts the 30-Year Treasury

The last time that happened was during the financial crisis, Bespoke says.

Everyone’s upset about the inverted yield curve and what it means for the future (a recession in a year or so). But stock investors, at least, got some good news: The dividend yield of the S&P 500 climbed above the 30-year Treasury bond’s yield.

The broad-market stock index yields a tiny bit more than the 30-year, which closed Tuesday at 1.97%. There’s only one other instance, over the last four decades, that such a thing has happened.

That occurred in late 2008 through March 2009, the nadir of the financial crisis, according to Bespoke Investment Group—and marked the start of the bull run. The S&P’s yield almost went higher than the 30-year’s in mid-2016, with Britain’s vote to exit the European Union, but fell short.

The stock index’s higher yield should be a good portent for equities, according to Bespoke Cofounder Paul Hickey. “For an investor looking to hold something for the long term, it makes equities relatively attractive,” he told CNBC.

Right now, investors are crowding into the perceived safety of Treasury paper, which is viewed as risk-free because the US never has defaulted and has the world’s largest economy. All that popularity bids up the price of Treasury bonds, thus lowering the yield. At the start of August, the 30-year stood at 2.44%.

Of course, the S&P 500 also yields more than shorter-term Treasuries, such as the benchmark 10-year. As of Monday, Bespoke’s report reckoned that “two-thirds of the stocks in the S&P 500 yield more than the five-year, more than 62% yield more than the 10-year, and slightly more than half yield more than the 30-year.”

Indeed, 25 members of the stock index have yields above 5%. A lot of that is owing to epic slides in some stock prices. The highest yielding of them all is Macerich, a real estate investment trust (REIT) that specializes in shopping malls, which is an unloved sector these days. The REIT yields an amazing 10.7%. Over the past 12 months, the trust has lost half its value.

Sometimes, earnings slips are a factor. But Altria, the tobacco giant that just announced its intent to re-merge with Phillip Morris, has had decent results, although the stock is down 22.5% over the previous 12 months. It sports a 7.1% yield.

At the beginning of August, by Bespoke’s count at the time, 173 S&P 500 companies had higher yields than the 30-year Treasury.

Certainly, high stock dividend yields often signal weakness in the issuing company. But for now, investors are being paid to risk it.

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