(Reuters) – Battered S&P 500 shares might get recent curiosity from buyers turning to dividends in a world of shrinking bond yields.
The dividend yield on the S&P 500 now exceeds the yield on the benchmark 10-year U.S. Treasury by its highest margin in practically 5 many years after a flight to safe-haven property compressed authorities bond yields to report lows.
Graphic: S&P 500 dividend yield vs 10-year Treasury here
Wall Street’s coronavirus sell-off has left the S&P 500 down 26% from its February report excessive, lifting its dividend yield to 2.46%, the very best since 2009, in keeping with Refinitiv’s Datastream.
By comparability, buyers’ rush to authorities bonds has pushed the yield on U.S. 10-year Treasuries to report lows, most not too long ago on Thursday at 0.59%. Bond yields fall as costs rise.
With Treasury yields so low, “income-seeking investors should consider stocks with both high dividend yields and the capacity to maintain the distributions,” Goldman Sachs really helpful in a observe to shoppers this week.
The financial institution’s report highlighted an inventory of 40 firms with comparatively excessive dividend yields, a protracted historical past of dividend payouts and steady stability sheets, amongst them Home Depot, Johnson & Johnson, Cisco Systems Inc and Wells Fargo & Co.
Historically, 10-year Treasury yields have nearly at all times been larger than S&P 500 dividend yields, with a handful of exceptions because the 2008 monetary disaster. At over 1.Eight proportion factors, the present unfold between the S&P 500 dividend yield and 10-year Treasuries is the most important since at the very least the early 1970s, in keeping with Datastream information, which doesn’t return any additional.
Attractive dividend yields on Wall Street might not final, nonetheless. Goldman Sachs warned in its report that S&P 500 dividends are more likely to shrink by 25% in 2020 as firms susceptible to the financial shock of the coronavirus outbreak reduce or scrap funds to shareholders.
Companies borrowing authorities cash underneath a $2 trillion financial stimulus package deal authorised final week should not allowed to repurchase shares or pay dividends till they repay their loans. Corporations together with Boeing, Macy’s and Ford Motor have already suspended their dividends.
S&P 500 dividends within the March quarter reached a report $127 billion, up 8% from the earlier yr, in keeping with S&P Dow Jones analyst Howard Silverblatt. However, in the identical quarter, a complete of 13 S&P 500 firms decreased future dividends by $13.7 billion, together with 10 firms that suspended their dividends, he stated.
In one other report, BofA Global Research estimated that in an excessive situation during which troubled industries slash dividends to zero, the S&P 500’s total dividend yield would fall by solely about 9 foundation factors.
“We recommend high quality and safe – not high – dividend yield companies until credit conditions stabilize,” BofA Global Research wrote.
Reporting by Noel Randewich; Editing by Ira Iosebashvili and Dan Grebler