Dividends.

Bespoke Investment Advisors on dividend yields: 

"...Following the August decline in equities, the yield on the entire S&P 500 actually surpassed the yield on the 10-Year US Treasury. Historically this has been an incredibly rare event.  Looking at individual stocks, the number of companies that have a higher dividend yield than the 10-year is almost mind-boggling. As of {September 14, 2011}, 233 (46%) of the stocks in the index have a higher yield than the 10-year, and more than sixty pay out a yield of more than twice the 10-year.

In this environment of relatively high dividend yields, the important question for investors to consider is whether or not the dividends are safe. A lot of dividend yields are high for a reason and indicate increased risk. Often times if a stock has a high yield, the market is probably not too confident in the company's prospects of being able to pay out that dividend.....

What makes the current period somewhat unique is that to this point it seems as though there have been more dividend increases than decreases.....Dividend increases like this are not the type of behavior you would expect to see if companies were concerned about their ability to pay dividends in the future."

My Comment:  Of course one of the ways to mitigate against single stock risk is to purchase higher dividend paying ETFs.  We have been actively pursuing this strategy since the market corrected in early August.  I'm not going to mention names here because I don't want to be seen as being in the stock or ETF touting business.  What I can say is that we have purchased ETFs with what we believe are solid growth prospects yielding between 3-5%.  A two year treasury yields something like 19 basis points {.19%} and a ten year yields just a bit over 2%.  Bonds have little potential appreciation value at this point as well.  That ten year could face losses over time though if {perhaps I should say when} interest rates start moving higher.  {Bond prices fall when interest rates go higher.} 

Of course there is no free lunch.  ETFs can decline in value and will obviously trade in line with the normal volatility of the markets.  Also there is no law that says the companies underlying an ETF won't cut their dividends at some point.  But I think with markets still 12-15% off of their highs you are being compensated for that risk.  The inverse of this risk is also true.  An ETF for example that goes up 10% over the next year that pays say 3% give you a 13% total return during that period.  There are many dividend ETFs that we believe have the potential to do that in the next 12-18 months.

One final thing.  You buy a ten year treasury for that bit over 2% right now you are saying the following.  You have so little confidence in economic growth in both the United States and the world over the next 10 years that you are willing to own an investment that will likely on a tax basis {unless held in a non-taxable account} and an inflationary basis lose money.  In that regard I'll take the vaguaries that are associated with dividend ETFs any day.

*Long many dividend paying ETFS in client and personal accounts.  Long ETFS related to the S&P 500 in client and personal accounts.  The quoted Bespoke article mentions Phillip Morris {MO}.  While we hold no personal position in MO it is a major componenet of certain ETFs we own both personally and for clients.

Link:  Bespoke: Yields