Sunday, July 17, 2016

Dividends Higher Than Interest Again

1959 all over again? Why this could be another historic moment for the market reports that for the first time since 1959 the S&P dividend yield is higher than the 10 year bond yield.  Prior to 1959, the S&P dividend yield was almost always above the 10 year bond yield.    However, since 1959, the 10 year bond yield has always been higher than the S&P dividend yield.

I found this article interesting, since all I have ever experienced is the 10 year bond yield  being above the S&P dividend yield.   So I assumed that was the norm.  I guess I accepted the explanation that dividend stocks had earnings growth, which led to a higher total return than bonds.

So what does the flip mean?  To note, both the S&P dividend yield and the 10 year bond yield are  about half of what they were in 1959. Are bonds now considered ultra safe investments again and yields will fall further?   Are stocks about to rise or fall significantly shortly to revert to the mean?  Is inflation unlikely and deflation more likely in the future?

All great questions to ponder.  My answers and yes, yes, and yes.

For more on New Beginnings, check back every  Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

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