Income is a crucial aspect of all investment strategies. In my previous post, âIncome from Equities or Bondsâ, I made an unbiased argument that the dividend yield from stocks looked better than the income from most fixed income investments. That view remains true even though the yield on 10 year bonds has increased by 20 bps since that article on March 6th. By looking at the dividend yields of large cap stocks drawn from the S&P 500 versus the 10 year treasury yield, we can see that some stocks still look like a good value versus fixed income.
Since the fundamental outlook from a top-line revenue perspective still does not look great, companies turn to three alternatives to expansion: 1) share buybacks; 2) higher dividends; and 3) leveraged buyouts. All three of these are bad for bondholders and mostly positive for stockholders.
