Last week’s market correction has lowered stock prices to the point where dividend yields are now at their highest levels in 12 years.
Leading S&P 500 components such as Pfizer (PFE), AT&T (T), Dow Chemical (DOW), Nucor (NUE), and Duke Energy (DUK) all ended the week with forward looking dividend yields of over 6.5% and well above their 5 year averages. See larger version of chart.
According to an analyis released by the Federal Reserve over the weekend, the Dividend-Price ratio of the S&P 500 finished the week of October 3 at 2.75% We estimate that after the declines of the week of October 10, the ratio climbed to 3.43%, well above the 1996 level of 2.3%.
The Health Care Select Sector SPDR Fund (XLV) has 9% of the ETF in Pfizer as well as a 14.6% stake in Johnson & Johnson which finished the week with a 3.4% forward dividend yield.
The Dow Jones U.S. Telecommunications Sector Index Fund (IYZ) is heavily concentrated in AT&T with a 24% stake. 18% of the fund is also in Verizonwhich had a 6.9% forward yield as of Oct. 10.
Dow Chemical is heavily owned by the PowerShares FTSE RAFI Basic Materials Sector Portfolio(PRFM) which has a 16% stake in the company.