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.


Bloomberg’s Chart of the Day


Reversal of Fortunes Between Stocks and Bonds
Barron’s, NOVEMBER 19, 2008


S&P 500 Payout Tops Bond Yield, a First Since ‘58: Chart of Day
David Wilson
Bloomberg, Nov. 19 2008


Category: Dividends, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

41 Responses to “S&P500 Dividend Yield vs 10 Year Treasury”

  1. leftback says:

    Nice chart Barry. I think this is also telling you that the 10-year note is a dogshit investment at this point and we might be about to see a bear market rally.

  2. Mike in Nola says:


    I suppose great minds think alike. Cramer’s program last night dealt a lot with high yielding stocks, esp. what he labelled as accidentally high dividend stocks.

    Anyone have any recommendations on stocks with safe dividends?

  3. KJ Foehr says:

    I just moved my wife’s 401Ks out of long-term T funds into MMFs today. There is probably not much more blood to squeeze out of those turnips.

    I think the worm is going to turn and we will see higher long-rates eventually (soon?).

    Current divvies, like bank book values last year, are historical artifacts that are meaningless going forward, IMO.

  4. Estragon says:

    It might be interesting to include buybacks in this analysis, as this was an important method of returning cash to shareholders until recently.

  5. leftback says:

    @ Mike: I like COP, which I own, and SGP, which I don’t at present, but is on my radar screen, although I am a bit concerned about future legislation in the prescription drug arena. RTP’s dividend yield is bigger than it was 2 days ago, and I now own that too.

    If you believe that the commodities slaughter is almost over, then many of the integrated oils/refiners (VLO) and some of the larger gold miners and ag stocks look good and have a decent yield here. Obviously dividends among the financials could disappear at any time. The key to all of this surely is to stay away from companies with high levels of debt. Like the man said, be wary of very high dividends, they may not be around for long.

    Anyway, there is no rush, there will surely be another down day coming along in no time at all, so we can all fill our boots once again. Last week I nibbled on GMO and some uranium producers which had been absolutely left for dead. Between those stocks and my position in F I have had a monster week.

  6. Andy Tabbo says:

    nice rally from last Thursday’s rally. I see some resistance coming up 906-914 zone. Last weeks bottom pickers should consider scaling out into the 900′s. We may get a rally all the way to 1008 eventually, but it will NOT be a straight line.

    - AT

  7. DKTrader says:


    I’m thinking we may hit 900′s on Friday, followed by some sell-off early next week. Hell at thsi rate, we may hit 900 today! Crazy, but I’m glad I’m long here.

  8. MarkTx says:

    What is truly astounding is that the more debt that is added in the US, the lower yields on the 10yr treasurys go.

  9. Vermont Trader says:

    Hey we are 20% off the lows!!!!

    It’s a new bull market.

  10. AGG says:

    This is temporary. Dividends can change rom quarte to quarte and they will with less profits. Unless you can lock in a certain dividend level (preferred stock, anyone?) for the duration of your asset purchase, your risk is very high. At any rate, the Volker rally should last until January so Merry Christmas to all the longs!

  11. kiltartan says:

    Shocking. Took some off the table this afternoon. Wish I had conviction to stay longer, but not sure that I buy the rally on the light volume.

  12. leftback says:

    AT, I think that will prove to be a sound call. 906-914 resistance – pulling back to the 840-850 area or to the weak 870 level before we boomerang upwards again towards the 975-1000 area.

    I have my eyes on 905, have already been pulling back a little bit (sold some GDX and PAAS) to raise cash. Gold seems due for a rest after a really big move up.

    A pause in that 900 area would give shorts time to reorganize and we should see some re-entry into SKF and SRS at that level. No point getting short at 900, SKF still has head and shoulders and needs to come off here.

  13. BKM says:

    I will be scaling out of some longs soon and trail the rest until a brake above 1100. I am still looking for new lows though.

  14. leftback says:

    Vermont Trader Says: November 26th, 2008 at 3:17 pm

    “Hey we are 20% off the lows!!!!
    It’s a new bull market.”

    LOL. Welcome to Cramerica, dude.

    Yes, Virginia, there will be a Santa Claus rally.
    But remember, the bill comes due in January.

    Happy Thanksgiving to all, and a bailout on every table…..

  15. Mannwich says:

    I’m starting to come around to a pretty solid Santa Claus rally as well but the real gift (or Thanksgiving feast, if you will) will be after the holidays when the shorts take over and reality sets in again in early ’09.

  16. DKTrader says:

    Am I the only one who thinks we’ve come too far, too fast in the last 5 days? I agree with some upside into Christmas, but I’m thinking a decent pullback is due(profit taking) and debating whether or not to sell today or just ride it out (in my 401k) and hope the pullback isn’t too severe.

  17. Mannwich says:

    I still think we breach 7,000 on the Dow and 700 on the S&P before either gets a whiff of 10,000 and >1,000 respectively…….

  18. TrickStar says:

    I’m just confused. Really. I’ve been sitting on my hands all week.

  19. DKTrader says:

    I just hope we go another leg up in the last few minutes, so I can get out even higher.

  20. kiltartan says:

    I am now 87% cash, which means the market will leg up higher…..

  21. DKTrader says:

    go baby go!

  22. Mannwich says:

    Up four days in a row. Nice rally into the close. Will it continue on Friday? Tough one but I think it will continue on light rally but then pull back pretty big next week on much heavier volume.

  23. DeDude says:

    Considering the rates, it seems to me that the government should be selling a lot more of those 30 year and 10 year treasuries. A year or two from now we will really need the money, but the rates will likely be a lot higher by then.

  24. DKTrader says:

    I think the markets may be up early on Friday and tehn negative by the close. I decided to sell out at the close just in case. Pigs get slaughtered and 20% in 4 days is not bad when most are still down 40% on the year. This terrorism presents more risk that most of us have not had in our minds in awhile. Let’s all hope nothing further happens. Happy Thanksgiving all…

  25. leftback says:

    DK: I cut my risk back at the close as well, not bearish here but agree that a 20% 4-day rally is a big move. Besides, I had made some selections that I regretted, and I managed to dump them with a gain. Which is awesome, really.

    Will take a brief peek on Friday but I am not expecting anything of significance. Looking ahead to next week, the data later in the week seem more likely to be negative (factory orders, continuing claims), but I am starting to feel that we are in a range here and the market will obey technicals rather precisely. So I will follow AT closely.

  26. DP says:

    All playing out a little too conveniently? 4 day rally in stocks leading up to “Black Friday” – people will spend more on Friday than they would have if this had been a 4 day downward move and Friday’s numbers will come in better than expected. Next week the auto-makers get bailed out and, possibly, we’ll hear more about Obama putting tax increases on hold. All leading into a nice end of year rally.

    January is a tough call. One the one hand there’s the temporary “euphoria” of the new administration being sworn in. I fully expect large public “no more bush” parties (whether you agree with the politics of that or not), so we might hold up a little early January. On the other hand, earnings will be terrible because of the “system shock” of this October and November. Even if those earnings are only temporary smashed because of this Oct/Nov they’ll have a big impact on the market.

    Once you get past mid-January, what is there to look forward to? That’s when reality sets in.

    Anecdotally, I’m spending big this year, but I’m buying things that will provide me plenty of entertainment (books, video games, a new tv, etc) and allow me to spend less on entertainment next year.

  27. I still think that BR’s Wyckoff Spring post was, really, his 3rd ‘bottom’ call, to go with 10/10 y 10/24..

    That’s Insane(-ly) good, BR do your clients how good of a Trader you are?

  28. DL says:

    DP @ 4:47

    “Next week the auto-makers get bailed out…”

    Bush isn’t going to veto that? (They’re auto-makers, not bankers).

  29. Mike in Nola says:

    Glad I lowered the price on my DUG order. Shows the occasional lack of correlation of the ultrashorts with the underlying stocks. Had an order in to buy at 31, but it had collapsed to 33 Monday, so I moved it down to 29. Then today, it looked like the market was starting to feel its oats, so I lowered it to 27. The low at the peak of the oil bubble was 25.41.

    I think oil will continue to rally a bit, or at least the oil stocks will, on the alleged improvement in outlook. I may even try to get it at a lower price.

    Like most everyone here, I think this is a bear market rally, but it may go farther than we think. All those fund managers and individuals who got beaten up badly in the crash have a lot of cash. And the gullibility of people is greater than we think.

  30. Steve Barry says:

    This chart interpretation is right out of Kudlow’s playbook. A closer look though will show that stocks historically (let’s say 1940-1990) bottom at a div yield of 6% and top at a yield of 3%. For the last decade, we have been below 3% until recently…but at 3.51, we are nowhere near the 6% that would truly be a buy signal. Furthermore, looking at treasury yield (the risk free rate) is only half the battle…you must take into account corporate spreads and beta to properly develop a cost of capital (discount rate)for a company’s earnings…and brother, spreads and beta are blown to record highs, rightfully so, due to the yet to deflate credit bubble. Comparing the yields as they do in this chart is as useful as comparing the temperature to the points scored by the Knicks.

    Maybe you could look into whether buybacks make dividends less important, but I doubt it.

  31. philipat says:

    On the other hand, “Long Treasuries, short every index” had become as jaded as its predecesor, “Long commodities, short Financials”. The next fashion trend is still being sought. As I suggested in another thread, perhpas Treasuries and the Dollar will be the last bubbles to burst. And what then?

  32. Staying long the stock market until the S&P 500 exceeds its election day peak… Analyzing today’s conditions in the context of post-WWII history largely is an exercise in insanity… yet understandable, though … because looking at the Treasury Secretary’s actions, insanity quite evidently is in vogue.

  33. DavidB says:

    @Mike in Nola November 26th, 2008 at 2:42 pm


    I’m currently accumulating INTC right now. They had a big pop today but their yield is sitting at 4% and their payout ratio is a relatively safe .4. Their balance sheet is pretty clean. They are very Buffetesque too. Ubiquitous, high barrier to entry, not going anywhere soon. They are the safe side of my portfolio. I like to say to people these days they are safer than a bank. You may want to wait until January after all the tax loss selling for the year is washed through the system but I think INTC has seen its low. It might test it again but I don’t think it will go much lower.

  34. Mike in Nola says:

    For those with really strong opinions, you can try out the 3X ultra’s. Apparently they are becoming quite popular. Don’t see a replacement for QID, though. So, I suppose Steve will just to be content with 2X leverage.


  35. David Merkel says:

    Barry, the critical valuation metric is the yield on BBB bonds less 4% vs earnings yields. Right now, it favors BBB bonds and high yield debt over stocks.

  36. Steve Barry says:

    Another simple conclusion…buy stocks when treasury yields will be falling (1982-2007)…sell them when yields will be rising (1964-1982). Today would be a bad time to buy stocks, as treasuries will not go much lower and as they debase the dollar, could rocket higher. (I read a paper by Buffett that said the same thing about 10 years ago). Actually the period of 1964-1982 had good economic growth, but it didn’t matter.

  37. Steve Barry says:

    Here is that Buffet piece I talked about:

    Warren Buffett (July 2001):

    The last time I tackled this subject, in 1999, I broke down the previous 34 years into two 17-year periods, which in the sense of lean years and fat were astonishingly symmetrical. Here’s the first period. As you can see, over 17 years the Dow gained exactly one-tenth of one percent.

    Dow Jones Industrial Average
    Dec. 31, 1964: 874.12
    Dec. 31, 1981: 875.00

    And here’s the second, marked by an incredible bull market that, as I laid out my thoughts, was about to end (though I didn’t know that).

    Dow Jones Industrial Average
    Dec. 31, 1981: 875.00
    Dec. 31, 1998: 9181.43

    Now, you couldn’t explain this remarkable divergence in markets by, say, differences in the growth of gross national product. In the first period–that dismal time for the market–GNP actually grew more than twice as fast as it did in the second period.

    Gain in Gross National Product
    1964-1981: 373%
    1981-1998: 177%

    So what was the explanation? I concluded that the market’s contrasting moves were caused by extraordinary changes in two critical economic variables–and by a related psychological force that eventually came into play.

    Here I need to remind you about the definition of “investing,” which though simple is often forgotten. Investing is laying out money today to receive more money tomorrow.

    That gets to the first of the economic variables that affected stock prices in the two periods–interest rates. In economics, interest rates act as gravity behaves in the physical world. At all times, in all markets, in all parts of the world, the tiniest change in rates changes the value of every financial asset. You see that clearly with the fluctuating prices of bonds. But the rule applies as well to farmland, oil reserves, stocks, and every other financial asset. And the effects can be huge on values. If interest rates are, say, 13%, the present value of a dollar that you’re going to receive in the future from an investment is not nearly as high as the present value of a dollar if rates are 4%.

    So here’s the record on interest rates at key dates in our 34-year span. They moved dramatically up–that was bad for investors–in the first half of that period and dramatically down–a boon for investors–in the second half.

    Interest Rates, Long-Term Government Bonds
    Dec. 31, 1964: 4.20%
    Dec. 31, 1981: 13.65%
    Dec. 31, 1998: 5.09%

    The other critical variable here is how many dollars investors expected to get from the companies in which they invested. During the first period expectations fell significantly because corporate profits weren’t looking good. By the early 1980s Fed Chairman Paul Volcker’s economic sledgehammer had, in fact, driven corporate profitability to a level that people hadn’t seen since the 1930s.

    The upshot is that investors lost their confidence in the American economy: They were looking at a future they believed would be plagued by two negatives. First, they didn’t see much good coming in the way of corporate profits. Second, the sky-high interest rates prevailing caused them to discount those meager profits further. These two factors, working together, caused stagnation in the stock market from 1964 to 1981, even though those years featured huge improvements in GNP. The business of the country grew while investors’ valuation of that business shrank!

    And then the reversal of those factors created a period during which much lower GNP gains were accompanied by a bonanza for the market. First, you got a major increase in the rate of profitability. Second, you got an enormous drop in interest rates, which made a dollar of future profit that much more valuable. Both phenomena were real and powerful fuels for a major bull market. And in time the psychological factor I mentioned was added to the equation: Speculative trading exploded, simply because of the market action that people had seen.

  38. Steve Barry says:

    Panasonic slashes profit estimate…get this…90% (not a typo)…and this all has happened since Oct. 28.

    Panasonic Cuts Profit Forecast on Prices, Demand Drop (Update2)
    Email | Print | A A A

    By Hiroshi Suzuki

    Nov. 27 (Bloomberg) — Panasonic Corp., the world’s largest consumer-electronics maker, slashed its full-year profit forecast by 90 percent as the global recession damped demand and product prices fell.

    Net income in the year ending March 31 will be 30 billion yen ($315 million), Panasonic said today. That’s less than the 310 billion yen estimate reaffirmed on Oct. 28 and the 281.9 billion reported a year earlier.

    Panasonic said prices for flat-panel TVs will probably drop 30 percent this fiscal year, more than its earlier forecast for a 20 percent decline, because of deteriorating demand for consumer electronics. Osaka-based Panasonic joined Sony Corp. in cutting annual profit estimates and said reorganization costs and erosion of stock investments contributed to the worsening outlook.

    “Even such a successful company as Panasonic can’t weather this harsh economic environment,” said Naoki Fujiwara, who oversees about $720 million at Shinkin Asset Management Co. “Plasma TVs, digital cameras, camcorders and DVD players: demand for these products has completely died down.”

    Panasonic fell 4.7 percent to close at 1,284 yen on the Tokyo Stock Exchange, before the announcement on the forecast. The benchmark Nikkei 225 Stock Average gained 2 percent.

    “The company’s business conditions are deteriorating sharply,” Panasonic said in a statement. “The current financial crisis originated in the United States, has spread across the world, and the business sentiment in Japan and overseas has significantly worsened.”

    Lower Operating Income

    Full-year operating profit, or sales minus cost of goods sold and administrative expenses, will be 340 billion yen, 39 percent less than earlier estimated, Panasonic said. The electronics maker had operating income of 519.5 billion yen last year.

    Sales will total 8.5 trillion yen, down from the previous projection of 9.2 trillion yen and revenue of 9.07 trillion yen a year earlier.

    Still, Panasonic has succeeded in cutting costs and compared with Sony, its operating profit is at an “acceptable level,” Fujiwara said.

    “Though the stock may be sold tomorrow, they will likely come back to its current level soon,” he said.

    Hitoshi Kuriyama, an analyst at Merrill Lynch & Co., yesterday estimated annual net income of 220 billion yen and operating profit of 420 billion yen and warned the projections might not represent “the worst-case scenario.”

    Kuriyama also cut his investment rating on Panasonic to “neutral” from “buy,” citing weaker consumer sentiment.

    Increased Expenses

    The company said today that expenses to reorganize its business will increase by 130 billion yen this fiscal year, while losses on stock investments will widen by 60 billion yen.

    The yen’s gains will cut full-year operating profit by 22 billion yen, and increased material costs will reduce earnings by 38 billion yen, Panasonic said.

    The latest forecast is based on a projection for the euro to average 125 yen in the second half to March 31, compared with 135 yen estimated previously. The company maintained its estimate for the dollar to average 100 yen during the period.

    The yen has gained 17 percent against the dollar this year, making it the best performer among 16 major currencies tracked by Bloomberg.

    The lower earnings outlook is a setback for President Fumio Otsubo’s target of 10 trillion yen sales in the year ending March 2010.

    Panasonic is also trying to gain a controlling stake in Sanyo Electric Co., and is in talks with three creditors to buy their holdings.

    Goldman Sachs Group Inc., the largest U.S. securities company to convert to a bank, yesterday said it broke off negotiations with Panasonic because of disagreements over terms.

    Sanyo Impact

    The company hasn’t taken into account any effects from the planned Sanyo acquisition in its latest forecasts because nothing has been finalized in discussions with the banks, Director Makoto Uenoyama said at a briefing in Tokyo.

    With the latest profit forecast, Panasonic’s return on equity will be 0.8 percent, Uenoyama said. Return on equity, or profit divided by book value, measures the earnings generated on the investment by shareholders. The company left unchanged its 10 percent return on equity target for the year ending March 2010.

    To contact the reporter on this story: Hiroshi Suzuki in Tokyo at Hsuzuki5@bloomberg.net.

    Last Updated: November 27, 2008 06:52 EST

  39. Its_Science says:

    “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.”

    That didn’t take long: Dividends being cut at fastest pace in 50 years