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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (10658)	11/20/2008 1:21:16 PM
From: John Pitera	Respond to of 33421

In the Bull Camp --- S&P 500 Payout Tops Bond Yield, a First Since ‘58: Chart of Day By David Wilson Nov. 19 (Bloomberg) -- U.S. stocks’ dividend yields were lower than the yield on 10-year Treasury notes for half a century. Not any more. Dividends paid by Standard & Poor’s 500 Index companies in the past 12 months amounted to 3.51 percent of the benchmark’s closing value yesterday. In early trading today, the 10-year yield fell as low as 3.42 percent. The CHART OF THE DAY tracks the yields, and the difference between them, on a quarterly basis since 1953. S&P provided the dividend yields. The data on the Treasury’s yield, holding the maturity constant at 10 years, comes from the Federal Reserve Bank of St. Louis. “Where was the anomaly -- in 1958 or in 2008?” Peter Bernstein, a market historian, wrote recently in his Economics and Portfolio Strategy newsletter. “Are there in fact any rules to define the basic relationship between bond yields and dividend yields? We see no clear answer to these questions.” Treasuries routinely had higher yields than stocks before 1958, according to Bernstein. When this relationship came to an end, yields were near their current levels. The S&P 500 dividend yield fell 0.58 percentage point, to 3.24 percent, in the third quarter of 1958. The 10-year yield rose about the same amount, 0.6 point, to 3.80 percent. Two explanations later emerged for the reversal, he wrote. One held that the economy’s recovery from the 1957-58 recession showed “investors could finally put to rest the widely held expectation of an imminent return to the Great Depression.” The second was the increasing popularity of investing in growth stocks, or shares of companies whose sales and earnings rose at a relatively fast pace. Because of their expansion, the companies often paid below-average dividends. “Growth justified dividend yields below bond yields, because the dividend flow could increase over time while bonds were a fixed-income investment,” Bernstein wrote. The letter was reprinted Nov. 3 by John Mauldin, a financial blogger. To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net Last Updated: November 19, 2008 10:36 EST