Investors are always hungry for yield, and in a low-rate environment, supplies are short. At 2.44 percent, the yield on the benchmark 10-year Treasury note is as low as it’s been all year and is well below pre-crisis levels closer to 4 percent. The yield on the 10-year T-note has, in fact, come down dramatically since hitting highs above 15 percent in 1981, and since the late ’80s it has declined fairly steadily to its current level, which is near historic lows set in 2012.
The current low-rate environment is largely the product of quantitative easing (QE), the ongoing monetary stimulus program conducted by the Federal Reserve in the wake of the financial crisis. QE put additional downward pressure on interest rates and effectively drove investors out of traditional debt securities like the 10-year T-note. There’s just not enough yield to go around at 2.4 percent; investors want their money to work harder than that.
The hunt for yield has led many investors to the equity market and, in particular, to high-yield dividend stocks. These stocks traditionally represent companies like Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), and Exxon-Mobil (NYSE:XOM): stable companies with well-established cash flows and a history of dividend increases. In short, cash machines.
While these companies have a place in many portfolios, an investor may want to shy away from their stock in search of better value. Companies with more esoteric cash flows may offer a higher dividend yield to lure and retain investors, which is an attractive opportunity for an investor who can tolerate the risk. Some companies also hike the dividend to attract investors after a period of weak financial performance that drove shares down. Here are a couple of examples of companies that have aggressively hiked the dividend yield in order to lure and retain investors.