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Stocks Near Record Levels Versus Treasurys

As stocks plunged and Treasury prices inched higher Friday, one measure of the relative appeal of stocks approached record levels.

The 10-year Treasury yield, which moves opposite the bond’s price, plunged to 1.47% by midday Friday–the latest in a string of record lows. Investors have rushed to Treasury bonds for safety from a mounting fiscal crisis in Europe.

Meanwhile, the S&P 500 index was trading around 1286 at midday, down 1.9% from Thursday’s close. At that level, its dividend yield, based on the past four quarters of company payments, is 2.13%.

The ratio of the dividend yield to the Treasury yield is 1.45.  That’s close to the high of 1.51, reached near the end of 2008, following the collapse of Lehman Brothers.

At that time, companies were slashing their dividends amid a credit drought. This year, dividend payments for S&P 500 companies are expected to rise 16%, says Howard Silverblatt, chief index analyst at S&P.

Dividends aren’t the only measure of the value of stocks, and the fact that the ratio of dividend yields to Treasury yields is approaching a record doesn’t necessarily mean stocks are a bargain.

It suggests, however, that they’re a much bigger bargain than Treasurys.


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