From Greg Jennings of OMC Financial Services:

Dividend Yields Now Higher Than Long-Term Interest Rates

Bonds for income, stocks for growth – right? 

In a normal world that is usually the case.  Interest rates on bonds are generally higher than dividend yields on stocks.   So, for a stock to be an attractive investment, its price would have to appreciate enough so when that gain was added to the dividend yield, your “total return” would be greater than the interest paid by the bond.

But these are not normal times.  Earlier this month, for the first time in 60 years dividend yields in the stock market exceeded long-term rates on U.S. Treasuries.  That meant you did not need to have your stock appreciate at all and you could still outperform government bonds just by collecting the dividend.

The stock market has come up off its lows so the dividend yield has decreased a little bit. Even now, though, the yield on the 10 year treasury is around 1.65% and the yield on the Russell 1000 (the 1000 largest U.S. stocks representing 92% of the market) is about 2.20%. 

Consider this:  Johnson and Johnson’s dividend yield is about 3.6% - more than double the 10 year treasury.  It has paid a dividend every year since 1944 and has increased its dividend for the past 49 consecutive years.  And it has a higher credit rating than the U.S. government. 

It is important to look at companies that have (and generate) enough cash to cover the dividend. A financial advisor can help with this.  And yes, stocks can fluctuate, but if your income needs are met you are better suited to withstand market volatility.