The S&P 500 utility sector, whose dividend yield at 3.9 percent is more than 100 basis points above the 10-year Treasury yield, led the S&P 500's advance on Aug. 8 after concern about the launch of U.S. air strikes on Iraq drove the benchmark bond yield to 14-month lows. The utility sector is up 8.8 percent since Dec. 31, the third best-performing sector for the year, following technology and health care.
"The U.S. 10-year is an attractive yield given the backdrop of very weak yields around the world. Therefore, that does make the dividend-paying sectors increasingly attractive,said Quincy Krosby, market strategist at Prudential Financial, based in Newark, New Jersey. "That's been the footprint for this market."
The S&P telecommunications index has an even higher dividend yield than utilities, at 4.7 percent, though a smaller pool of stocks. The sector has been weak this year because of a lackluster performance by its biggest names, AT&T and Verizon.
Reuters reported that telecom hasn't been as strong - gaining just 0.8 percent in the same period - but two of that sector's constituents, Windstream Holdings and Frontier Communications, have both gained roughly 40 percent. Windstream Holdings has a dividend yield of 9 percent, the highest in the S&P 500, while Frontier Communications is third highest, with a yield of 6.2 percent, according to Thomson Reuters data. Those compare with the S&P 500's dividend yield of 2.4 percent. These companies have gained 40 percent and 37 percent this year, respectively.
"Where yield lies is where investors are continuing to go because there continues to be no alternative from other income-producing securities," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, Pa.
Also, benefiting from the drop in bond yields are exchange-traded funds tied to dividend payers, including the Powershares Dividend Achiever exchange-traded fund, which rose 1.3 percent on Aug. 8 and is up 3.2 percent for the year.