“With high-yield spreads at current levels it’s hard to make a valuation case for the asset class compared to high dividend,” Jason Collins, the London-based head of European equity at SEI Investments Co., said Feb. 5. His firm has $195 billion under management. “This is particularly so given the lack of inflation protection that high-yield debt offers compared to equity, which offers the potential of both dividend growth and capital appreciation.”
Limited Brands paid $5 a share in dividends last year, 10.4 percent of its stock price, data compiled by Bloomberg show. The dividend yield has climbed from 6 percent in 2010 even as the shares more than doubled. The Columbus, Ohio-based retailer’s 10-year notes yield 4.8 percent.
GDF Suez paid 1.5 euros a share in 2012, yielding 10.1 percent, up from 2 percent in 2005. The Paris-based company’s 2017 bonds yield 1.38 percent.
“Increasingly, dynamic capital allocators are being forced to consider equities,” according to Jonathan Stubbs, a London- based equity strategist at Citigroup, who says European equities will climb as much as 30 percent in the next two years.
“To get those returns from bonds is impossible at these levels,” Stubbs said in a Feb. 6 phone interview. “To not buy equities here you’d have to be a big macro bear.”