Dividends are back. “The humble dividend is reclaiming its rightful place as the arbiter of stock-market value. In three of the four biggest developed markets, shares offer a higher yield than the longest-dated government bond, and in the fourth—the U.S.—the dividend yield beats even a 20-year bond,” writes James Mackintosh at The WSJ.
But offering higher yields than the longest-dated government bonds is like jumping over a candle stick. “The low returns on the longest-dated bonds are extraordinary: 0.3% on Japan’s 40-year government bond, 0.9% on Germany’s 30-year bund, 2.1% on Britain’s 50-year gilt and 2.6% on the 30-year U.S. Treasury bond.” This is truly historic.
What does it mean for retirement investors? Be careful. Do not be tempted to replace your bond component with dividend stocks. Yes, I love dividend stocks but not as a replacement for bonds.
What you should do is re-read those long-term bond yields. This is not a growth market. Future stock market expectations must be lowered.