Nearly all the juice has been squeezed out of bonds. This leaves income-oriented investors searching elsewhere and increasingly they’re turning to dividend-paying stocks and funds.

Today’s chart compares two electronically traded funds (ETFs). One is the Vanguard Dividend Appreciation fund (NYSE: VIG). This, as its name suggests, is a fund of dividend-paying stocks, including Wal-Mart, Coca-Cola, IBM and Chevron.

The other is the iShares Barclays Aggregate Bond fund (NYSE: AGG). This fund invests in bonds – some corporate bonds, from the likes of Verizon and Bellsouth – but mainly U.S. Treasury bonds and government-sponsored enterprise debt, like Fannie and Ginnie Mae.

Both ETFs provide an annual yield of a little more than 2%, which makes them close enough for an apples-to-apples comparison.

Here’s a ratio chart comparing the relative performance of the two funds. The ratio is calculated as:

See image larger

As you can see, since 2009, investors have increasingly favored dividend-paying stocks over chasing paltry bond yield. VIG has doubled in price since then, while AGG has increased just 25% from its 2008 lows.

I expect this trend to continue as long as the Fed keeps its thumb on interest rates and investors seek income… both of which seem like an easy bet at this stage of the game.

If you haven’t done so already read the Survive & Prosper issue on “Hate the General Equity Markets? “



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Adam O'Dell
Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.