With US Treasury yields so low right now, yields on equities have become increasingly competitive. Granted, Treasuries have considerably less capital risk than equities, but from a historical perspective, it isn’t typical for stocks to yield more than Treasuries. Then again, is anything typical these days? While there have been short periods in recent history where the S&P 500 has had a higher dividend yield than the 10-year US Treasury, right now the 10-year yield (2.05%) is just under 20 bps higher than the dividend yield of the S&P 500 (1.87%).
For a large percentage of the S&P 500’s individual components, though, it’s a different story. As shown in the chart below, 225 of the S&P 500’s individual components had a dividend yield of more than 2.05% (the yield on the 10-year) while 173 of those have a higher yield than the 30-year US Treasury. Also, relative to the 5-year US Treasury, more than half (259) of the S&P 500’s components have a higher yield.
Turning to the highest yielding S&P 500 stocks, 25 of them now have a yield of 5% or more. Normally, you would expect to see stocks from the Financials and Utilities sectors comprise a large portion of a list like this, but each of these sectors only has one stock on the list. The two stocks with the greatest representation are Energy and Real Estate, each with five. Perhaps the most notable aspect of the list is that all eleven of the S&P 500’s sectors are represented on the list – even Technology (Seagate)!
While high dividend yields sound attractive, it’s important to be careful with these types of names as they often have high yields for a reason. Just look at the five highest yielders; they’re all down YTD and by an average of 20% compared to the S&P 500 which is up over 20%. Year to date, the 25 names listed below are up an average of just 1.11%.
One theme that stands out on the list is just how out of favor brick and mortar retail is. Not only is that evident with names like Macy’s (M) and Kohl’s (KSS) but more importantly the retail-related REITs like Kimco (KIM), Macerich (MAC), and Simon Property (SPG) that own much of the real estate that the brick and mortar retailers lease.
Of all the names listed below, a year or two from now a number of these names will likely be big winners, but there will also undoubtedly be a number of names that either cut their dividends substantially or simply go out of business. Start a two-week free trial to Bespoke Institutional to access our full research suite.