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Dr Oliver Plein, head of product specialists - equities, DWS Investments

Comment: Low bonds yields could see investors moving to dividend paying stocks


Following two major bear markets over the past 10 years, investors have flooded into the perceived safety of fixed income products. Net flows for bond mutual funds outpaced net flows of equity mutual funds following the financial crisis. However, in today’s low interest environment, equities now appear attractive relative to bonds, especially dividend paying stocks, says Dr Oliver Plein, head of product specialists, equities, DWS Investments…

Yields on a number of fixed income investments have been falling, particularly with respect to government bonds. Government bond yields will typically exceed stock yields; however, all sectors within the MSCI Euroland index are currently producing higher yields relative to European sovereign bonds. Yields on government and corporate bonds are so low that dividends in many cases offer more income than bonds. For example, nearly one-third of S&P 500 companies currently pay a dividend that exceeds the yields on their intermediate bond, which means that equity investors have the benefit of price appreciation as well as greater income than bonds holders. 

At a time when many analysts believe equity prices are attractive, it makes sense to think that investors who typically flock to bonds might be attracted to dividend paying stocks. 

When compared to government or investment grade bonds, the positive carry for dividends is particularly beneficial in the telecom, utilities, energy and healthcare sectors. Companies in these sectors demonstrate significant improvements in corporate profitability and their balance sheets are in excellent shape. 


The longer interest rates remain low, the more investors seek adequate returns from alternative asset classes. Dividend paying stocks are subsequently becoming more attractive to income orientated investors. 

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