dinsdag 11 november 2014

Dividend Yield Vs. Bond Yield

It pays off to compare the dividend yield and the bond yield in the U.S.

A very long time ago, before 1970, dividend yields on stocks were on average priced at 120% of the triple AAA bond yields. So if a bond gets you 10% return, the dividend yield would get you 12%. That's because stocks can default and are riskier than bonds which are less likely to default.

But since 1970, this has changed.with the rise of mutual funds. The ratio of dividend yields versus bond yields dropped to around 20% (see chart below). Today we are at 100% so we are back in line with history (with stocks just a little bit overpriced). Just keep in mind that we have the 120% rule and try to follow this rule (to keep your sanity in these volatile markets).

U.S. bond yields can be found here:

Dow Jones dividend yields can be found here:

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