The case for holding stocks primarily for income has weakened considerably. The S&P 500's dividend yield has fallen to roughly 1.05%, while the 10-year Treasury yield sits near 4.74% — a gap so wide it has not looked this lopsided since before the global financial crisis.

Data from Ned Davis Research, shared by analyst Liz Ann Sonders on August 20, shows that only 3.85% of S&P 500 stocks now out-yield the 10-year Treasury. That is the lowest ratio since May 2007.

A decade-long reversal

The scale of the shift becomes clear looking back to July 2016, when 63.4% of S&P 500 stocks offered higher yields than the 10-year Treasury. In the ten years since, Treasury yields have normalized following the pandemic-era rate-hiking cycle, while the S&P 500's average dividend yield has remained below 2% since 2020. For much of 2026, it has hovered near or below 1.1%.

Why dividend yields have shrunk

The decline in equity dividend yields is not primarily the result of companies cutting their payouts. Instead, three reinforcing factors are at work.

First, valuations. The S&P 500 has climbed to levels where even steady dividend payments translate into very small percentage yields. When a stock doubles in price but its annual dividend stays flat, the yield is cut in half.

Second, buybacks. Corporate America has increasingly preferred share repurchases over dividend increases as its capital-return mechanism of choice. Repurchases carry advantages dividends lack: they can be paused without the negative signal of a dividend cut, and they shrink the share count, lifting per-share results. In recent years, aggregate S&P 500 buybacks have exceeded aggregate dividend payments, running to hundreds of billions of dollars annually.

Third, index composition. The S&P 500 is increasingly dominated by mega-cap technology companies that either pay no dividends at all or pay token amounts relative to their market capitalizations. Nvidia, Apple, and Microsoft — each among the index's largest weights — distribute only a small fraction of their market value in dividends, dragging down a cap-weighted average no matter what traditional income sectors such as utilities, consumer staples, and energy pay.

Implications for income-oriented portfolios

For investors whose primary objective is generating income, fixed-income securities — particularly Treasuries — now present a notable alternative on paper: government bonds at 4.74% yield roughly five times the S&P 500's average dividend payout of about 1.05%.

The comparison, which echoes the logic of the long-debated "Fed model" weighing equity yields against bond yields, is a snapshot of current income rather than a verdict on long-run returns. A Treasury held to maturity locks in a fixed coupon, while dividends can be raised over time — and both asset classes carry price risk if conditions change.

What happens to the gap from here hinges on the path of the 10-year Treasury yield — shaped by Federal Reserve policy, inflation expectations, and the supply of government debt — and on whether corporate capital return continues to favor buybacks over dividend growth.

The last time this few S&P 500 stocks outyielded the 10-year Treasury was mid-2007. That historical parallel does not mean a similar outcome is inevitable, but it underscores that extreme divergences between equity and bond income have tended to coincide with late-cycle dynamics.