WHEN NOT TO BE RISK-AVERSE - FINDING THE RIGHT PRICE
The cash dividend yield on stocks in the S&P500 is fast closing in on the yield of the five-year treasury note, which is a mere 2.8%.
That means, if you don't need to use the money for five years, you can get paid in cash a yield more than you would get from a five-year treasury note.
The "buy" signals are starting to flash brighter and brighter for those with "strong hands".
Even allowing for some really steep cuts in dividends, adjusting for a 30% fall in cash dividends that lasts for three years, one still does better than the three-year treasury, which is yielding today just 1.94%.
Right now, no one expects the upcoming global slowdown to be a grinding three-year process that would require cuts to be that steep for that long. Meanwhile, every Central Banker in the world is working overtime to reflate your equity investments, so it's a rational deal, if you can shoulder the risk(s).
Thursday, October 9, 2008
Cash Dividends on Stocks -- Now Better than Yield on Bonds
