European stocks, on the other hand, have been delivering an average dividend yield of more than 2.5%, according to MSCI data as of February 27, 2015. Institutions have already been buying up European equities, and individual investors are expected to follow.
Market Realist – Where to find yield today?
The low or negative yield on the European bonds has led yield-hungry investors to look for yield elsewhere. While the risk-averse investors are resorting to US Treasuries (TLT) (GOVT), which are providing higher yields, others are looking at stocks that pay high dividends (DVY) for yield.
Currently, both corporate and government bonds in Eurozone are yielding close to 1%. This is in stark contrast to what it was in 2000, when they were yielding a juicy 5% and 7%, respectively.
On the other hand, stocks in the Eurozone have a healthy dividend yield of ~3%, compared with ~2% in 1999. The dividend yield on German stocks currently stands at ~2.5%—slightly lower than other EU stocks, but still higher than yields on European bonds.
The European QE could boost stocks further, quite like the US version helped American stocks. The DAX Index of Germany has given returns of ~23% since the announcement of QE in January.
While European stocks have run up this year, they still appear inexpensive compared with their American peers. The next part will explore this in detail.