Who Needs Capital Appreciation?

There's a famous curse, supposedly Chinese, that says "May you live in interesting times." Well, I don't need to tell you that we're living in rather interesting times, financially speaking.

So many of the news reports we see use extreme language these days -- even here at the Fool, many of us believe that the current market may be "The Opportunity of a Lifetime," or "Your Once-in-a-Lifetime Investing Opportunity." (With the stock market down some 40% over the past year or so, it's actually hard for me to argue with those headlines.)

I ran across an interesting bit of extreme data the other day, from Wharton professor Jeremy Siegel. He noted that the current average dividend rate for the Russell 3000, a broad measure of the entire stock market, is outpacing the 10-year Treasury bond's interest rate -- for the first time since the early 1950s. This should make us all sit up and pay attention.

Why? Well, as Siegel remarked, "for the first time in more than half a century investors do not need to generate capital gains in order for stocks to beat bonds." This is exciting to me because in coming years, I do expect capital appreciation from stocks, and that will all be gravy.

It gets even better. You might reasonably think to yourself, "Well, sure, the dividend yield is solid now, but companies are cutting dividends." OK, but remember that many of the dividend cutbacks have already happened. Think next about the tax factor. Interest from bonds is generally taxable at your ordinary income-tax rate, which for many of us is anywhere from 25% to 35%. Dividend income, meanwhile, is taxed at 15% for most of us. Advantage: dividends.

Here's a list of dividend payers I created recently. I used our free screener on Motley Fool CAPS to find large-cap stocks with dividend yields above 2.5% that have earned a top five-star rating from our 125,000-strong investor community:

Source: Motley Fool CAPS.

And if you'd like more promising dividend payers, we'd love to introduce you to some via our Income Investor newsletter service which you can try for free. On average, its picks are beating the market handily with plenty of high-yielding stock recommendations.