Hello, YieldAlley readers! In this issue:

• High-grade corporate bonds versus stocks.

• Number of 401(k) millionaires hits a new record.

• The impact of dividends on total return, by the decades.

• Nvidia announces 150% dividend increase.

• And more!

Fixed Income and Cash Income

Buying High-Grade Corporate Bonds Instead of Stocks

An analysis of high-grade bonds shows that they’re trading at increasing discounts to equities. Investors are highlighting that the value gap between top-tier corporate debt and equities has rarely been as substantial as it is currently. The disparity between high-grade US debt and the S&P 500 is at its widest in over two decades, while for Europe this gap can be traced back at least a decade. This means that the spread between the yields on high-grade bonds and the earnings yields (returns) on the broader stock market has expanded significantly, making corporate debt more attractive relative to equities. Bloomberg's data shows the S&P 500 earnings yield is now almost 2% less than the average yields for BBB-rated corporate bonds. In essence, high-grade bonds are currently offering a compelling opportunity compared to stocks for investors seeking yield. As of May 23, 2024, the current US Corporate BBB Effective Yield is 5.75%.

✂️ Goldman Sachs CEO expects no rate cuts this year. David Solomon, CEO of Goldman Sachs, doesn’t see any compelling data for the Federal Reserve to cut rates this year. From his discussions with businesses across the country, consumer behavior has been negatively impacted by the cumulative impact of inflation and more expensive items. This differs from Solomon’s comments earlier this month when he said the economy was “chugging along pretty well”. His recent remarks coincided with the release of the Federal Reserve meeting minutes from their May 1 meeting, which highlighted the disappointing inflation data from the first quarter of the year. There is a belief that the Fed’s 2% inflation target will take longer than anticipated.

🏖️ Number of 401(k) millionaires hits a new record. Fidelity Investments reported that the number of 401(k) accounts with balances of $1 million or more reached a record 485,000 in the first quarter of 2024. Tailwinds from the stock market, which has surged, helped increase the number of millionaire retirement accounts by 15% from the previous quarter. Current average retirement account balances are also the highest it’s been since the end of 2021 — $125,900 for 401(k)s and $127,745 for IRAs. However, large balances can skew averages. The median balance for 401(k)s at Fidelity is $28,900, and $15,000 for IRAs. Millionaire retirement accounts make up only 2% of the 24 million retirement accounts at Fidelity.

All brokerage cash guides and playbooks can be found on YieldAlley.com.

Dividend Income

The Impact of Dividends on Total Return

Investors are paying more attention to dividends. Looking at stock market returns decade-by-decade from the 1940s to 2020s reveals that dividends played a larger contributing role to total returns in lower return decades like the 1940s, 1960s and 1970s when total annualized S&P 500 returns were under 10%. Dividends contributed 67%, 44% and 73% of total returns in those decades respectively. In higher return decades like the 1950s, 1980s and 1990s when annual S&P 500 returns exceeded 10%, dividends played a smaller role, contributing just 30%, 28% and 16% of total returns. The data highlights how dividends can provide an important source of return when capital appreciation is lower, but get overshadowed when price returns are very strong, as they were in the 1990s tech boom when companies preferred reinvesting profits over paying dividends. However, since the ‘90s, investors have returned their attention back to dividends.

📈 Nvidia announces 150% dividend increase and 10-for-1 stock split. Nvidia announced a significant 150% increase in its quarterly dividend from $0.04 per share to $0.10 per share. The increased dividend of $0.10 per share is equivalent to $0.01 per share on a post-split basis. This substantial dividend hike will be paid on June 28, 2024 to shareholders of record as of June 11, 2024. Alongside the dividend increase, Nvidia also announced a 10-for-1 stock split of its common stock. Each shareholder of record as of the close of market on June 6, 2024 will receive nine additional shares for every one share held. The stock split will take effect after the close of trading on June 7, 2024, with trading on a split-adjusted basis expected to commence on June 10, 2024. These moves demonstrate Nvidia's confidence in its strong financial performance and future growth prospects, driven by the surging demand for its AI products and services. The stock split aims to make Nvidia's shares more accessible to a broader range of investors, including employees.

📊 Dividend payments from U.S. companies hit a new record in the first quarter. $164.3 billion of dividends were paid in the first quarter, up 7% from a year ago. As we mentioned last week, investors are expecting more tech companies to begin paying dividends. We believe this trend will grow as American companies are flush with cash, and increasing the ways they return value to shareholders. For example, Disney suspended its dividend during the Covid-19 pandemic to preserve cash but re-introduced its semiannual dividend last December. Nearly all dividend-paying U.S. companies either raised or maintained their shareholder payouts over the past year.

Opportunities

Brokerage Bonuses

Brokerages can offer very generous bonuses for deposits. We recommend taking advantage of these bonuses, which can help you earn up to 7% APY on your cash. Brokerages are the best way for most people to purchase the investments we discuss. As always, we highly recommend reading the fine print with these offers. We earn no money from these offers.

• E*Trade: Up to $4,000 in bonuses for deposits made within 60 days of enrollment. The lower deposit bonuses are also excellent, with E*Trade offering a bonus of $100 for a deposit of just $50. Offer here.

  • Use promo code PROMO24.

    • $50+ will receive $100

    • $1,000-$24,999 will receive $150

    • $25,000-$49,999 will receive $150

• tastytrade: Offering up to $5,000 in bonuses. Lower deposit bonuses are attractive, with a $100 bonus for a deposit of $5,000 (2% return). Offer here.

• Robinhood: Offering a 1% bonus for transferring any table brokerage holdings. No maximum, but deposits must be held for two years after account opening. Offer here.

Opportunities

Bank Bonuses

While we recommend passive savers and investors consider brokered CDs, money market funds, or floating rate ETFs instead, some people may want to take advantage of bank bonuses and promotional rates. As always, we highly recommend reading the fine print with these offers. We earn no money from these offers.

Bank Bonuses

• Altra Federal Credit Union — $250 checking bonus for a new Business Advantage or Business Edge account with $2,500 in qualifying deposits and 20 debit card transactions. Use promo code CHK_$250BUSINESS. Offer here.

  • Availability: MN, WI, TN, TX

  • Soft credit inquiry.

• American Bank & Trust — $250 checking bonus when you open a new checking account and receive a direct deposit in the first 90 days of account opening. Offer here.

  • Availability: SD & MN

  • Soft credit inquiry.

Opportunities

Credit Card Bonuses and Offers

Credit card signup bonuses are one of the easiest ways to earn extra income, as long as you are vigilant in managing payments, your credit score, and claiming bonuses. We know some of our readers are interested in the latest credit deals. As always, we highly recommend reading the fine print with these offers. We earn no money from these offers. The offers below show the best current offer at this time.

• Citi / AAdvantage Platinum Select World Elite MasterCard — 75,000 American Airline miles after $3,500 in spend within the first four months. Offer here.

• Citi / AAdvantage Executive World Elite Mastercard — 100,000 Mile offer after spending $10,000 within the first three months. Offer here.

• Chase Sapphire Reserve — 75,000 points with referral link after $4,000 in spend within the first three months.

  • Chase Sapphire Preferred offer here (please message us if you need a referral link).

  • Chase Sapphire Reserve offer here (please message us if you need a referral link).

• Chase British Airways — 85,000 points after spending $5,000 within 3 months on Chase British Airways, Iberia, and Aer Lingus cards.

  • British Airways Offer, Aer Lingus Offer, Iberia Offer

Picture of the Week

What We’re Reading

• Debt is the top threat to your dividends. (Roger Conrad)

• Stock market performance in an election year. (Of Dollars and Data)

• Vanguard braces for turbulence. (Yahoo Finance)

• BlackRock wants to give you a monthly check for your retirement. (WSJ)

• America’s $38 trillion retirement pool crisis. (Bloomberg)