PAM Perspectives Q4 2010

The search for yield: are equity dividends now more attractive than bond yields?If we look at the historical returns of the equity markets and the impact of dividends on those returns, perhaps long term investors should consider paying less attention to the capital growth of stocks and more attention to the yield of their portfolio. Traditionally pension investors invest in bonds to match their long term liabilities, but bonds have rallied sharply in the wake of the financial crisis and are expensive. Investment in high-dividend stocks can be a good alternative. They can provide a stable income stream and long term capital growth potential while at the same time a higher dividend yield lowers the overall volatility of the total return.