Conventional Wall Street wisdom says you buy bonds for yield and stocks for capital gains. Bonds provide reliable income. Stocks provide for harrowing rides. That's conventional wisdom.

But current market conditions are turning conventional wisdom on its head.

Stocks as super bonds
The Wall Street Journal recently reported that even bond guys are getting excited about stocks. That's because companies are making record dividend payouts, Treasury yields are below average, and the federal government has cut the dividend tax rate all the way down to 15%.

In other words, stocks are offering better after-tax yields than Treasuries with the potential for the stock to go higher. Cash and capital gains? That's a recipe for market-beating success.

More money, less risk
Where are these high-reward opportunities? Ironically, they're not among the riskiest stocks. Instead, some of the market's best dividend and capital-gains plays lie among stable, profitable, cash-generating giants. These are companies such as Citigroup (NYSE:C), Dominion Resources (NYSE:D), Wachovia (NYSE:WB), and DuPont (NYSE:DD), and Motley Fool Income Investor recommendations Heinz (NYSE:HNZ), JPMorgan (NYSE:JPM), and Bank of America (NYSE:BAC).







Dominion Resources















Bank of America



*Data provided by Capital IQ, a division of Standard & Poor's

The above seven companies all offer better after-tax yields than a 10-year Treasury, and given the quality of the names above, they're not doing so with a lot of added risk. Factor in that six of the seven are trading for less than or just about the S&P 500 average P/E, and you can understand why bond guys are getting excited about stocks.

The Foolish bottom line
Motley Fool Income Investor lead analyst Mathew Emmert recommended JPMorgan to subscribers back when the stock yielded close to 4%. He saw a stock that had suffered from merger integration woes and punitive fines, but he also saw a company that was nearly 30% undervalued and likely to hike its dividend. JPMorgan has returned nearly 15% since then, putting it nine points ahead of the market.

Mathew specializes in recommending undervalued cash kings with greater than 3% yields and capital-gains opportunities, and his recommendations are beating the market by nearly three percentage points to date. Today at 4 p.m. EST, he releases his semiannual review and his two best recommendations for money now. Click here to take a free trial to Income Investor and access the review as soon as it is released to subscribers. Now that even bond geeks are excited about dividends, it's truly the time to add superior dividend-payers to your portfolio.

Tim Hanson does not own shares of any company mentioned in this article. No Fool is too cool for disclosure ... and Tim's pretty darn cool.