Line chart showing 10-year Treasury yield subtracted by the S&P 500 dividend yield.
Y-axis: Spread between 10-year Treasury and the S&P 500 dividend yield (%); X-axis: 1971 – 2021
The spread fluctuates between roughly 2% and 4% from 1971 to mid-1979. At that point, spread variation becomes more pronounced, increasing from about 3.8% in July 1979 to more than 7.6% by February 1980. By June 1980 the spread falls sharply to over 4.8%, then increases with some volatility to over 10% by September 1981.
Broadly speaking, since that time there has been a gradual decline in the spread amid much volatility. By late 1982 it has again fallen sharply to 5.5%, then increases to near 9% by May of 1984, falling sharply again to less than 4% in November 1986 and rising again to 6.9% in September 1987. For the period September 1993 to March 2002, the spread stabilized somewhat, fluctuating between 2.8% and 5.5%. From September 2002 to November 2007 it again briefly plateaus, fluctuating between 1.7% and just over 3.4%. But by the end of 2008 it again finds a new, volatile plateau, varying from roughly -1.7% to just over 1.8%. By the end of Q3 2021 the spread stood near 0.11%.
The average 10-year Treasury yield exceeds S&P 500 Index dividend yield by 3.3%. The Q3 2021 10-year Treasury yield is 0.11% higher than the S&P 500 Index dividend yield.
Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from January 1, 1971 to September 30, 2021. The S&P 500 Index is a market-capitalization-weighted index considered representative of the U.S. stock market. Investing in stocks involve risk and their returns and risk levels can vary depending on prevailing market and economic conditions. An index is unmanaged and not available for direct investment. Yields represent past performance and fluctuate with market conditions. Current yields may be higher or lower than those quoted above. Past performance is no guarantee of future results. Investing in stocks involves risk and their returns and risk levels can vary depending on prevailing market and economic conditions. Although Treasuries are considered free from credit risk they are subject to other types of risks. These risks include interest rate risk, which may cause the underlying value of the bond to fluctuate.
- The S&P 500 Index’s dividend yield is attractive compared to yields available from traditional fixed income.
- Quality dividend-producing equities may rise as investors search for income-producing assets in a low-interest-rate environment.