With the income from bonds withering away, investors are piling into dividend-paying stocks.
Even Bill Gross, the influential bond guru who oversees $1 trillion in fixed-income investments at Pimco, has been urging investors to move out of low-yielding bonds and savings accounts into utility and telecom stocks with high dividends.
Several funds specializing in stocks with stable or rising income, including T. Rowe Price Dividend Growth, Vanguard Dividend Growth, Vanguard Dividend Appreciation ETF and SPDR S&P Dividend ETF, have each taken in at least $100 million in new money this year even as assets have been leaching out of other stock funds.
Think twice before you join the stampede.
True, the Crane 100 index of taxable money-market funds yields an average of 0.07% and the Barclays Capital U.S. Aggregate bond index just 3.4%. Meanwhile, many stocks are paying dividends of 4% and up.
But income isn’t interchangeable; a 4% yield on bonds isn’t the same thing as a 4% yield on stocks. Bonds are risky too, especially at today’s high prices. Stocks, on the other hand, can fall hard even when they pay high dividends.
Consider the Standard & Poor’s ‘dividend aristocrats,’ the companies in the S&P 500 index that have raised their dividends every year for at least 25 years in a row. In 2008, these 52 blue chips yielded an average of 3.9% — more than twice the return on Treasury bills.
But the dividend aristocrats fell 21.6% last year. Yes, that beat the 37% loss on the S&P 500 as a whole. And if you had invested $10,000, you would have earned a solid $388 in dividend income. Yet you still finished the year with $2,155 less than you started with.
Utility stocks offered even higher yields last year — and bigger losses, too. Despite yields of 4% and up, utility indexes lost 28% to 32% in 2008.
The whole point of holding bonds and cash is to provide income and safety to temper the risks elsewhere in your portfolio, like the risks of owning stocks. No matter how fat a dividend they offer, utilities and other high-yielding stocks are still stocks. Preferred stocks, convertible bonds and junk bonds behave like stocks.
Piling this stuff on top of the equities you already own makes a portfolio riskier. ‘Just think of all those widows who thought they could rely on steady dividends from Wachovia and other banks,’ warns Larry Swedroe, director of research at Buckingham Asset Management in St. Louis.
I called Mr. Gross to clarify his position. ‘The last 12 to 18 months have proved there’s an appropriate price for liquidity,’ he said, ‘and these days that comes in the form of a near-zero percent yield’ on money funds. ‘For the typical small investor, that represents an insurance policy or a way station for required expenditures in the near-term future.’
So, isn’t the purpose of a money-market fund to keep a portion of your money safe, rather than to provide income to live on? ‘It’s hard to disagree with that,’ Mr. Gross said. Instead of draining their money-market accounts, he would rather see investors replacing some of their growth stocks with high-dividend-paying stocks.
Don’t forget that even today’s 2% to 4% bond yields aren’t as paltry as they look, because inflation remains close to zero. The 6% interest income you remember earning a decade ago came at a time when inflation ran about 3%. You might protest that inflation, as officially measured, is understated today — but it is probably no more inaccurate now than it used to be. In real terms, you are only slightly worse off now than you were then.
So a two-year bank CD or a Treasury inflation-protected security yielding around 2%, and short-term investment-grade bond funds at 2% plus, aren’t the end of the world.
Mel Lindauer, co-author of ‘The Bogleheads’ Guide to Retirement Planning,’ is fond of I-bonds, inflation-adjusted savings bonds from the Treasury that are yielding 3.36%. You can’t cash out for at least 12 months, and you forfeit the last three months of interest if you redeem in less than five years. But I-bonds are free of state and local tax. Information is at treasurydirect.gov.
In any case, don’t kid yourself into thinking stock dividends and bond interest are interchangeable. They aren’t.
即使颇有影响力的债券专家、管理着太平洋投资管理公司(Pimco) 1万亿美元固定收益投资的格罗斯(Even Bill Gross)也一直在力劝投资者从低收益率的债券和储蓄帐户抽身，转投公用事业和电信等高派息类股。
几家专门投资收益稳定或不断上升股票的基金，今年来都至少新吸收了1亿美元投资，而其他股票基金管理的资产则一直在缩水。这些扩大投资规模的基金包括T. Rowe Price Dividend Growth、Vanguard Dividend Growth、Vanguard Dividend Appreciation ETF和SPDR S&P Dividend ETF。
在现有持股的基础上再加入大量高派息股会令你的投资组合风险加大。圣路易斯资产管理公司Buckingham Asset Management的研究主管史维卓(Larry Swedroe)表示，想想那些曾指望从Wachovia和其他银行获得稳定派息的寡妇们就知道结果会是怎样。