For years, one of the factors supporting the U.S. stock market was the idea that it was "the best house in a bad neighborhood," or one of the few global assets that offered both growth and a decent yield. Now, the second part of that argument looks a lot less compelling.
Currently the S&P 500 (.SPX) has a dividend yield of less than 2%. This is not only the lowest yield the benchmark index has paid out since 2011, according to FactSet data, but it represents one of the lowest yields of any major country, as seen in the following chart from Bespoke Investment Group.
Only three countries — Japan, South Korea and India — pay a lower yield, while Australia's is more than twice as big, with a yield of 4.2%.
The U.S. 10 Year Treasury Note currently yields 2.49%, but for a long time it yielded less than the S&P. Last year, the 10-year yield hit an all-time low below 1.4%. The improvement in yields — in hand with a drop in bond prices, as the two move inversely — comes has the Federal Reserve has been raising its key federal funds rate, including three times this year.
At the start of the year, the S&P's yield was around 2%, and the change largely reflects the growth in U.S. stock prices. Yields fall as prices rise because the actual payout remains consistent. By and large, companies haven't been cutting back on their dividends; in fact, they hit a record in the third quarter, with $105.4 billion paid out. However, there have been some high-profile exceptions, including General Electric (GE) , which in November halved its own payout as it sought to preserve cash.
The tax bill, which President Donald Trump signed into law on Friday, could boost dividend payments if companies — flush with the cash that comes from a lower corporate tax rate; cash levels are already at a historic high — return some of that to shareholders in the form of raised dividends.
Goldman Sachs expects 42% of the $2.3 trillion that could be spent will be returned to shareholders in the form of dividends and stock buyback programs.
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