Yield vs. Yield: Why Bonds and Dividend Stocks Are Not Intercheangable

Lately there have been a lot of commentaries making the argument that instead of buying fixed income for yield it makes more sense to buy equities for yield as bond substitutes. Whitney Tilson has used the example of Johnson & Johnson (JNJ), which is a client holding, in pointing out that the company recently issued 10-year paper at 2.95% with the common yielding what is now 3.49%. Tilson says it makes much more sense to buy the common for the potential price appreciation and the reasonable likelihood that the company will continue to increase the dividend which the company has done every year since 1752 (slight exaggeration).Carrying out the thought a little further, fixed income yields are at all time lows or close to it, while the S&P 500 is 27% below its 2007 peak and 25% below its March 2000 peak. It would be tough to argue that stocks aren't relatively cheaper than bonds--I've been writing for ages that I think bonds are way overpriced and so have been keeping maturities very short and obviously bonds, or anything for that matter, can stay very expensive for a long time and stocks can stay "cheap" for a long time.... Read more