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