That's a 1.8 - percentage - point annual advantage for high -
yielding stocks versus the market.
Not exact matches
Also, the
yield on the 10 - year Treasury note was over 6 % 15 years ago
versus roughly 2 % today, making the risk premium of
stocks versus bonds much higher today than it was then.
«The
stock portfolio is now priced at 13.7 times normalised earnings [
versus 23.4 X for the S&P 500], giving us a 7.3 % earnings
yield, which becomes our new base case return expectation for a ten to fifteen year horizon.»
The earnings
yield (earnings per share divided by the share price, or the inverse of the price - to - earnings ratio) still looks attractive
versus real (after inflation) bond
yields, meaning
stocks may be cheaper than they look in a low - rate world.
As bond
yields rise, investors are less incentivized to own a dividend paying
stock versus a safer bond.
If the 30 - year Treasury
yields 6 percent, why on Earth would you accept only 0.67 percent more income for a
stock that has lots of risks
versus a bond that has far fewer?
Look at the effect of rebalancing
versus not rebalancing at a 3.5 % earnings
yield and a 4.0 % withdrawal rate with 50 %
stocks (i.e., HSWR50T2 and HSWR50T2n).
Buying
stocks with an earnings
yield at least twice that of the AAA bond rate would have generated an average compound growth in price over the 50 - year period of 19.9 %,
versus 7.5 % for the Dow Jones industrial average;
As bond
yields rise, investors are less incentivized to own a dividend paying
stock versus a safer bond.
Also, the
yield on the 10 - year Treasury note was over 6 % 15 years ago
versus roughly 2 % today, making the risk premium of
stocks versus bonds much higher today than it was then.
Finally, they backtest volatility prediction / risk parity allocation effectiveness separately for
stock, commodity, high -
yield corporate bond, investment - grade corporate bond and government bond indexes (each
versus the risk - free asset).
Value
stocks, as usual, provide a higher dividend
yield currently at 2.38 %
versus 1.47 % for growth
stocks.
Yield levels like the present typically bode well for corporate bonds
versus stocks.
Inverting some of these metrics gives us an idea how much earnings
yield / free cash flow
yield we get for the business
versus historical, other prospecting
stocks, cost of capital.
Here are graphs of 30 - Year Historical Surviving Withdrawal Rates HSWR with 50 % and 80 %
stocks with and without rebalancing
versus the percentage earnings
yield 100E10 / P.
The earnings
yield (earnings per share divided by the share price, or the inverse of the price - to - earnings ratio) still looks attractive
versus real (after inflation) bond
yields, meaning
stocks may be cheaper than they look in a low - rate world.
So my next question is, «Have you, or anyone else, looked at the average dividend
yield of small cap
versus large cap, and value
stocks versus growth
stocks?
To see what I mean, look below at the income streams from a
stock yielding 7 % but not growing dividends,
versus a 5 % yielder that hikes payments 10 % every year.
The bond market is bigger than the
stock market, and those that invest there are brighter in one sense — they have to make decisions over small differences
yields,
versus the safety of those
yields.