Cheap Dividend Stocks

Are markets close to a bottom? Yes, says Meggan Walsh, portfolio manager of Invesco Diversified Dividend (LCEAX). She bases her view on an unusual event that occurred during the turmoil of the past week. After stocks hit a low, the dividend yield of the S&P 500 rose to 2.2%, a bit above the yield of 10-year Treasuries. In recent decades, stocks rarely have yielded more than Treasuries. The last time it happened was during the financial crisis. The S&P yielded more than Treasuries for a couple of days near the market trough, and then stocks went straight up, Walsh says.

Whether markets are cheap or rich, stocks haves nearly always yielded less than Treasuries. With stocks yielding 1.23% in 2000, 10-year Treasuries yielded 6.5%. In August 2010, the S&P dividend yield was around 1.80%, while Treasuries yielded about 2.7%. Investors have traditionally accepted the low dividends because they figured that stocks could deliver capital appreciation and outdo Treasuries over the long term. But during the recent selloff, investors lost confidence in stocks. That resulted in higher yields for stocks.

Source: The Street

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