(Bloomberg News) Pacific Investment Management Co.'s Neel Kashkari said investors should buy equities because valuations, income growth and dividends show the asset class is attractive.

The Standard & Poor's 500 Index's price-earnings ratio sank to a 28-month low of 12.2 last month, and then recovered to 12.5, according to data compiled by Bloomberg. The inverse of that multiple, known as the earnings yield, shows income represents 8 percent of the measure's price, or 6.1 percentage points more than the rate on 10-year Treasuries. That's the biggest gap since 2009, when the level was the highest in Bloomberg data going back to 1962. The dividend payout is exceeding bonds for the second period since the 1950s.

"Equities offer returns in three different ways: multiples can expand, earnings can grow and through dividends," Kashkari, the head of global equities at Pimco, which manages about $1.3 trillion in assets, said in an interview on Bloomberg Television's "InBusiness" with Margaret Brennan. "On all three factors, equities look very attractive."

S&P 500 earnings are poised to reach a record $99.88 a share this year, according to the average of securities industry estimates compiled by Bloomberg, after companies beat projections for 10 straight quarters. Analysts have grown more optimistic about earnings since the S&P 500 peaked on April 29, driving their forecast up from $98.73 a share.

Between April 29 and Aug. 8, the S&P 500 fell 18 percent on concern that Europe's debt crisis will spread and U.S. economic data weakened. The measure rose 3.1 percent since then through Sept. 9. Analysts estimate companies in the gauge will see per- share earnings rise 9.2 percent in 2011 from the prior year, according the Bloomberg data. The measure's dividend yield has risen to 2.3 percent from 1.9 percent on Dec. 31.

"Volatility is here to stay," Kashkari said in the interview. Investors "need to be able to stomach that volatility -- but if they do and they can, we think they'll be rewarded." He said large corporations, especially those with business in emerging markets, will have strong earnings growth potential.

The Chicago Board Options Exchange Volatility Index, the benchmark measure of U.S. equity derivatives, jumped as high as 48 last month, its highest level since the bull market began in 2009, as investors sought protection from risky assets. It closed at 38.52 on Sept. 9.

Kashkari, who joined Newport Beach, California-based Pimco in December 2009, was named head of global equities last week. The firm, which has more than 90 percent of its assets in bonds, has gathered about $4 billion in its stock funds since he joined Pimco.