In April 2005, (when interest rates were arguably more normal than they’ve been during the low-rate, post-crisis economy, steered by the Federal Reserve) an investor could have purchased a 10-year Treasury bond with a yield to maturity of 4.4%. That represented an attractive boost over the dividend yield of the S&P 500 Index, which at the time was 1.9%.
Fast forward a decade to April 2015, and that same Treasury bond investor is recovering his/her principle, while also receiving the last of 20 identical coupon payments. Upon maturity, the investor has earned an annualized total return of 4.4% per year.1
Today, the dividend yield on the S&P 500 Index is still around 2%, but the annual dividend per share is not what it was in 2005 ($20.60). Rather, over the course of ten years the dividend has doubled to $41.31. Based on the level of the S&P 500 in April 2005 (1,157), $41.31 per share equates to a yield of 3.5%, a level far superior to the 2% yield on the 10-year Treasury bond in April 2015.
Source: Milliman
