SET TO SHINE
confident these sectors could compete with the yield on the 10-year at such a low level.
Goldman Sachs chief executive officer Lloyd Blankfein issued a note of caution about the disparity between bond yields and equities at a conference in Germany last Wednesday, saying “When yields on corporate bonds are lower than dividends on stocks, that unnerves me”.
Stubbornly low bond yields can be of concern to equity players because they are forced to take bigger risks as they search for higher returns. They also raise red flags about the health of the economy.
Yields fell even further on Friday, to 2.016 per cent, after New York Fed President William Dudley struck a less hawkish tone about rate hikes, while still defending them, in a Thursday night speech.
The dividend yield on the telecom sector is 5.2 per cent while the utilities sector holds a 3.4 per cent yield compared with a 2.4 per cent yield for the broad S&P 500 index.
Those sectors have had divergent fortunes this year, however, with utilities up more than 12 per cent while telecoms have dropped more than 14 per cent, the worst among the major S&P sectors.
Telecoms also show a forward price to earnings ratio of 12.9, well below the 17.6 of the S&P 500. Utilities, however, are slightly more expensive with an 18.4 ratio, which could make them less attractive to investors even with the dividend premium. Reuters