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As if it isn't telling enough that the dividend yield on the S&P 500 is higher than the 10 year Treasury yield, here's another sign that stocks are extremely cheap right now compared to bonds: the difference in the yield on a 23 year Procter & Gamble (NYSE:PG) bond (quote via Scottrade) and the dividend yield on its equity is just 60 bps. Click to enlarge:

Unlike S&P 500 dividends and Treasury coupons, Procter's coupons and dividends are paid out of the exact same cash flow, which was $13.2B in 2011. Yet the relative price of Procter's debt vs. equity makes it look like these are securities from two totally different companies.

If P&G's earnings power is less certain than it once was (as suggested by the high dividend yield), then why is the debt yield so low? Conversely, if the earnings power is stable (as suggested by the low debt yield) then why is the dividend yield so high?

At these yields, an equity investor is essentially buying a free call option on Procter's growth. Considering that P&G has raised its dividend every year for the last 56 years, that seems like a pretty safe bet.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Procter & Gamble: Company's Dividend Vs. Debt Yield Shows How Cheap Stocks Really Are