Equities rose last week for the first time in a month as U.S. and Chinese manufacturing increased more than estimated and private employers added 67,000 jobs in August, beating the median estimate for 40,000 in a Bloomberg survey of 55 economists. The S&P 500 climbed 3.8% to 1,104.51 last week, and lost 0.5% at 9:31 a.m. New York time today.

Companies in the S&P 500, including more than 120 that offer no dividend, pay an average of 2.01% of their share price to shareholders, up from 1.8% in April, Bloomberg data show. U.S. corporate debt yields fell to 3.7% on Aug. 24, the lowest level in 20 years of information tracked by Barclays Plc. That day also marked the smallest spread between bond and dividend yields since at least 1995, according to data compiled by Bloomberg.

Relative Value

"It's definitely a way to say that stocks are cheap relative to bonds," said Barton Biggs, who runs New York-based hedge fund Traxis Partners LLC. The firm piled into equities at the bottom of the global bear market in March 2009, before the S&P 500 went on to gain as much as 80%, providing Traxis investors with 38% returns, three times the industry average, according to Chicago-based Hedge Fund Research Inc.

"You should own stocks rather than bonds," Biggs said. "I don't think bonds are the right things to be buying, particularly Treasury bonds."

Justifiable Concern

Concerns about the reinstatement of taxes on dividends and capital gains that were reduced under President George W. Bush may slow gains in utilities and telephone companies, the highest-yielding shares and the only groups among 10 that have risen since the S&P 500 reached its 2010 peak in April. Congress will begin debate this month on whether to extend the cuts. The 15% tax rate on dividends would jump to as much as 39.6% for the highest earners if the reductions expire.

"Anyone worried about navigating the next two quarters is probably justified in their concern" about the taxes, said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $55 billion. "If investors are at least considering this worst-case scenario, stocks are more adequately priced based on more of the uncertainty related to stocks than bonds."

J&J's dividend represents 3.66% of its share price, or 1 percentage point higher than the yield on its bonds due November 2019. The New Brunswick, New Jersey-based company, whose cash is 14% of total assets, posted higher-than- estimated profit on July 20. The shares have lost 8.5% this year.

'Nice Yields'