For Yield Hunters, Here's a Place Still Offering Rich Dividends

(Bloomberg) -- With bond yields marching higher, U.S. dividend payouts have lost their luster. Not Europe.

The recent surge in the U.S. 10-year bond yield toward 3 percent is making the S&P 500 Index’s estimated dividend yield of around 2 percent look pretty skinny just as the stock market selloff of the past two weeks reminds investors that equities as an asset class is still riskier than fixed income.

Time for yield hunters to cross the Atlantic: With rich corporate dividends, still ultra-low interest rates by the European Central Bank and little prospect of a hike on the horizon, Europe offers investors payout yields close to 300 basis points above those on the German 10-year benchmark bonds.

The 10-year U.S. benchmark yield has this week been closing in on a level that many market watchers see as a pain threshold for equities. That puts pressure on valuation levels especially in the U.S., and makes fixed income relatively attractive again compared with dividend yields, according to Societe Generale SA strategist Roland Kaloyan, who favors European stocks over U.S. peers.

But Europe is not there yet. Members on the benchmark Stoxx Europe 600 Index trade at a bumper 3.6 percent dividend yield -- the highest among the world’s main markets -- while the 10-year bund yield hovers around 0.8 percent. The equity payout is also a nice cushion in market selloffs: While the Stoxx 600 tumbled as much as 8.8 percent in the recent pull-back, Societe Generale’s basket of stocks offering attractive and sustainable dividend yields fell 7.5 percent.

To contact the reporters on this story: Blaise Robinson in Paris at brobinson58@bloomberg.net, Namitha Jagadeesh in London at njagadeesh@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Blaise Robinson, Paul Jarvis

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