The bond market is offering income investors yields that dividend stocks have struggled to match. The 10-year Treasury yield has stayed above 5%, recently trading between 5.2% and 5.3%, while investment-grade corporate bonds yield near 6%.
That competition has hit dividend-paying shares in utilities, real estate and materials, as investors seeking income moved towards bonds. The shift followed the Federal Reserve’s quarter-percentage-point increase in its overnight rate on 16 September, which pushed Treasury yields higher.
Longer-dated Treasury yields have reached their highest levels in 24 years. The 10-year yield touched 5.342% and the 30-year reached 5.683%.
The losses have been especially sharp in several dividend-focused funds. The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) fell 7.59% over the trailing month, while the iShares Select Dividend ETF (DVY) lost 6.02%. The Vanguard High Dividend Yield Index ETF (VYM) gave back 3.85% over the past month.
The WisdomTree U.S. Quality Dividend Growth Fund (DGRW) limited its one-month decline to 0.81%, helped by its heavy weighting towards technology.
Investors have put money behind the turn towards fixed income. The iShares 20+ Year Treasury Bond ETF (TLT) received more than $3.2 billion over the past month, its largest single month of inflows on record. Ultrashort bond funds drew close to $20 billion during September, according to Morningstar data, also a category record.
Matthew Liebman, the founding partner and chief executive of Amplius Wealth Advisors, said bond yields are as attractive as they have been in 20 years, give or take. Investment-grade corporate bond yields are roughly half a percentage point higher than a month earlier.
Yet the higher headline yield does not settle the choice for retirement investors. Timothy Chubb, chief investment officer at Girard, a Univest Wealth Division, said he preferred a company growing 4% to 5% a year with a 3% dividend yield to an 8% yield from a business in decline.
Hartford Funds found that dividend-paying companies have historically fallen less during major market drawdowns than shares that do not pay dividends. Dividends can also keep delivering cash flow when share prices are weak, allowing retirees to receive quarterly income even as the value of the underlying shares falls.
The income is not guaranteed. Companies can cut or suspend payouts when profits worsen, as many did during the financial crisis and the pandemic. For retirement investors, the recommended shares are those that have maintained steadily rising dividends for years or decades, including through recessions. Many companies raise their dividends over time, which can help counter inflation.
Bonds carry their own risks. Long-duration bonds can suffer substantial price losses when interest rates rise, while lower-quality corporate bonds can decline alongside stocks during economic stress.
The longer record remains favourable to equities over extended periods. In Fidelity’s S&P 500 history from 1928 through 2024, stocks were positive in 100% of 20-year calendar periods.
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