Dividends Top Bond Yields by Record as Limited Pays 10% – Bloomberg 02-11-13

Salient to Investors:

The MSCI World Index dividend yield of 2.7 percent compares with the Bank of America Merrill Lynch Global Corporate Index bond yield of 2.6 percent and the Barclays Global High-Yield Index yield of 6.1 percent -the gap with the junk-bond index is the narrowest since at least 1995.

Jacob de Tusch-Lec at Artemis Investment Mgmt said quality equity gives you dividend growth while bonds are not protected against inflation and don’t give income growth.

Matthew Merritt at Insight Investment Mgmt said the search for yield has pushed rates to a point where it’s guiding people towards equities, not because it’s an incredible environment for equities but because there is some support for equities.

The MSCI World Index is at 13.8 times estimated earnings, near the highest since December 2010.

Mike Turner at Aberdeen Asset Mgmt said concern over the strength of the global economy, US budget negotiations, and elections in Europe may trigger investor flight and prevent a massive rotation out of bonds and into equities. Turner said there’s a natural affinity to own equities just from an income advantage, but ultimately we are unlikely to have major damage in the bond market because keeping rates extremely low is a key point in monetary policy.

Analysts expect companies in the MSCI World Index to increase dividend payments by 3.8 percent to a combined $39.43 a share in 2013. The yield gap between the Barclays Global High-Yield Index and the MSCI World was 3.4 percent last week versus 17.1 percent at the height of the financial crisis in 2008 and versus 3 percent in January, the smallest on record.

EPFR Global said US-domiciled stock funds attracted a net $57.4 billion in January, the highest since at least 1995, while bond funds attracted $20.7 billion, the lowest since December 2011.

Jason Collins at SEI Investments said it’s hard to make a valuation case for high-yield over high dividend, particularly given the lack of inflation protection that high-yield debt offers compared to equity.

Jonathan Stubbs at Citigroup said dynamic capital allocators are being forced to consider equities, and predicts European equities will climb as much as 30 percent in the next 2 years, an impossible return from bonds – to not buy equities you’d have to be a big macro bear.

Read the full article at http://www.bloomberg.com/news/2013-02-11/dividends-top-bond-yields-by-record-as-gdf-pays-10-.html

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