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NEW YORK, Feb 25 (Reuters) – The advantage that the S&P 500 dividend yield has held over the benchmark U.S. Treasury note during the pandemic has been erased, a year after the collapse in interest rates set the stage for Wall Street’s recovery from the coronavirus sell-off.
The U.S. 10-year Treasury yield on Thursday briefly rose above the estimated 1.48% S&P 500 dividend yield, and was last at 1.4561%, approaching 1.5% for the first time in a year. The move could make stocks look relatively less attractive compared to safer Treasuries.
“The market has done great, but this has changed the risk-reward,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. “Treasury bonds are seen as a safer investment. All stocks have risk, even dividend payers.”
Silverblatt calculated the S&P dividend based on Wednesday’s closing S&P 500 level. Refinitiv Datastream calculated the dividend at 1.45%.
Silverblatt noted that companies will be paying more money in interest, although less than before the coronavirus rocked financial markets. “There is a lot more debt out there now, companies have bulked up because they were worried about cash and issued shares and debt, we see that in all the statistics, and eventually it catches up with you.”
Treasury yields tumbled in February 2020 as the coronavirus pandemic shocked global financial markets and crippled much of the world’s economy. Simultaneously, falling stock prices created a spike in the S&P 500 dividend yield, even as many companies suspended payouts to shareholders.
The S&P 500 dividend yield in late March reached 2.76%, a historically large premium over the 10-year Treasury yield of 0.76% at that time, according to Refinitiv Datastream.
Since then, companies have largely resumed their dividends, with many even increasing their shareholder payouts.
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