In Pursuit of Fleeting Yields

It’s been tough to find a respectable yield in the stock market for more than a decade now. The S&P 500’s average dividend yield has hovered around 2% since the last economic crisis a little over a decade ago.

In fact, even in the depths of the Great Recession, the average yield only broke 3% for about six months running.

Considering how scarce yield has been, it is no surprise that the yield seekers are back out. Dividend fund managers have started digging through the wreckage. They’re looking for something – anything – to buy.

In March, U.S. stocks plunged as the novel coronavirus reared its head. Shelter-in-place orders went into effect, forcing thousands of American businesses to close. The plunge saw stocks give up roughly a third of their value in under a month. The drop even halted trading on major exchanges three times. And stock yields spiked.

In March, the average S&P 500 yield rose to 2.25%, its highest point since a brief period in February 2016.

That’s lured fund managers back into the market, through the pickings are still slim.

Yields didn’t just rise as stock values fell. Dozens of companies have suspended stock buybacks. They have even cut or suspended dividend payments to conserve cash.

True, some states have begun a phased reopening process. It is still anybody’s guess when we’ll get back to business as usual – if ever.

And while bonds have never offered outrageous yields, they are paying even less than usual, too.

As the U.S. Federal Reserve has cut interest rates to help stimulate the economy, bond yields started to drop. Now, with the government adding $2 trillion to the national deficit in a single quarter, bonds are going to be a tougher sell . . . especially since the government’s talking about issuing a new 20-year bond to cover it.

The fact is there’s still not going to be a lot of yield to be found.

The good news is, there is an answer. We’ve found a special sort of investment that not only still pays a decent dividend, it’s undervalued, too.

Stay tuned . . .

Here’s to profits,

Ben Shepherd