Newspaper article THE JOURNAL RECORD

Income Investors Face a Bull-Market Squeeze

Newspaper article THE JOURNAL RECORD

Income Investors Face a Bull-Market Squeeze

Article excerpt

NEW YORK -- With all the benefits it has bestowed, Wall Street's great bull market also poses an increasing problem for conservative, yield-conscious investors.

As prices of both stocks and bonds have soared, they have depressed the yields on just about all the choices available to people with new money to put to work.

To compound the difficulty, corporations have been much slower than they once were to raise the dividends paid on their stocks, favoring other uses like buybacks as channels for their increased profits. "Lower interest rates, net-net, benefit the economy," says Greg Smith, investment strategist at Prudential Securities. But, he adds, "the other side of the low-interest-rate phenomenon is that some people lose income." "These are difficult times for income-oriented stock investors," observes Richard Moroney, editor of the investment advisory letter Growth Stock Outlook in Hammond, Ind. "Dividend yields are near all- time lows, and U.S. companies see little reason to remedy the situation." Leading stock-price indexes lately have been hovering around levels they first reached last June. That has given corporate earnings and dividends time to catch up with previous sharp gains in the market. But while earnings have shown continued strength, dividends haven't risen as fast. By Moroney's reckoning, while profits of companies in the Standard & Poor's 500-stock composite index rose 8 percent to 10 percent in 1997, dividends increased only about half that much. That has helped push the S&P 500's aggregate yield down to a meager 1.6 percent. Meanwhile, a benchmark for the bond market, the yield on long-term Treasury bonds, has fallen over the past year from roughly 6 3/4 percent to about 5 3/4 percent. In a situation like this, income- minded investors have limited options. They can move into riskier investments, such as lower-rated bonds than they previously owned, to keep getting the yields they want. But many analysts say such a strategy is an open invitation to trouble, if not disaster. …

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