S&P 500 12 Month Gross Dividend

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The dark blue line above shows the nominal dividend (measured in index points) of the S&P 500 Index, while the light blue line shows the coupon of the most recently issued 10-yr Treasury bond.

At the end of January 1990, the S&P 500 was at 329 and was paying a dividend of 11.6 index points, equal to a dividend yield of 3.5%. The 10-yr Treasury offered a coupon of 7.875%.

As of August 2018, the S&P 500 sits at 2,816 and offers a dividend of 51.8 index points, equal to a dividend yield of 1.8%. The coupon on the 10-yr Treasury is 2.875%.

The Treasury coupon is about one-third of what it was in 1990, while the dividend of the S&P 500 is five times higher. For a buyer of the S&P 500 in January 1990 who has a cost basis of 329, the growth of the dividend from 11.6 to 51.8 means their dividend yield has grown from 3.5% to 15.7%.

Over this period, stocks have shown themselves to be a much better hedge against inflation, as higher prices flow through into corporate earnings and ultimately into dividends.

The tradeoff, however, is higher volatility. Over this period, while stocks generated cumulative dividend growth that was double the rate of inflation, they also exhibited double the volatility of the 10-yr Treasury, and in some instances much more.

Unless otherwise noted, data is sourced from Bloomberg.
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