Treasuries Vs. General Market ETFs

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 |  Includes: DIA, SPY, TLO
by: Jamin Chen

When choosing between stocks and bonds, one of the deciding factors is the yield. At the close of last Friday, September 23, the two general market indices, Dow Jones Industrial (NYSEARCA:DIA) and S&P 500 (NYSEARCA:SPY), gave the following yields:

ETF

Closing Price

Dividend (Charles Schwarz Street Smart)

Dividend Yield (Charles Schwarz Street Smart)

DIA

$107.25

$2.51

2.42%

SPY

$113.15

$2.45

2.17%

Click to enlarge


On the other hand, the Treasuries representing the safest bonds were having the following yields as of 9/23/2011

Date

1 mo

3 mo

6 mo

1 yr

2 yr

3 yr

5 yr

7 yr

10 yr

20 yr

30 yr

09/23/11

0.00

0.01

0.02

0.10

0.23

0.37

0.89

1.35

1.84

2.59

2.89

Click to enlarge

When you compare DIA and SPY against Treasuries, you will see that both DIA and SPY have a yield that is comparable to the 20-year Treasuries.

You may question how good the dividends of DIA and SPY are. The following is the dividend history of DIA.

(Click chart to expand)Click to enlarge

The 20-period moving average shows that DIA has been fairly steady in delivering its dividends. For the past 3 years, it is averaging at about $0.25 per month or about $3 per year. Therefore, when DIA is below $100, its return is better than 30-year Treasuries. Does this mean there is a floor of $100 for DIA or 10,000 for DJIA? Lately, DJIA has been holding above 10,600 indicating there is a powerful support around there.

Other factors to be considered when choosing these two types of investment are safety and capital gain.

Treasuries do provide better safety between the two. However, there is a good prospect of capital gain with DIA and SPA.

The choice is yours.

Disclosure: I am long DIA.