Dividend Champions vs. Bonds: Finding the Right Income Plays in Today’s Market

by Chris Pulver | Jan 16, 2025

With bond yields climbing to multi-year highs, the search for reliable income is getting competitive.

The U.S. 20-year treasury yield recently topped 5.06%, offering an attractive, risk-free option for long-term investors. In a world where there is no alternative — the famous “TINA” trade — income seekers now face real choices between bonds and dividend-paying stocks.

Let’s dive into what this means for traders and how to navigate today’s income landscape.

Why Bonds Are Back

For years, bond yields were stuck at historic lows, forcing income-focused investors to chase dividends in the stock market. But with treasury yields now offering around 5%, bonds have regained their allure.

The 10-year yield is around 4.6%, and even the 30-year yield is just shy of 5%. These rates provide pension funds, IRAs and other income-focused portfolios with steady, risk-free returns — something that hasn’t been true for over a decade.

From a trader’s perspective, this shift changes the game. With bonds offering competitive yields, dividend-paying stocks must offer more than just a steady payout to stay relevant.

Dividend Stocks to Watch

Despite the bond market’s resurgence, dividend-paying stocks still have their place in a well-rounded portfolio. Names like Universal Health Realty (UHT), Altria (MO), and AT&T (T) are worth a closer look. These companies offer reliable income streams and, in some cases, the potential for capital appreciation.

Take Altria, for example.

With its high dividend yield (7.84%) and the ability to sell covered calls on the stock, it’s an attractive candidate for generating income in a sideways or slightly bearish market.

Similarly, stocks like UHT (7.87%) and T (5.07%) provide consistent payouts that can rival or even exceed bond yields, especially when paired with options strategies to enhance returns.

The Trade-Offs

The choice between bonds and dividend stocks comes down to risk and reward.

Bonds are risk-free — backed by the U.S. government — but lack the potential for capital growth. Dividend stocks, on the other hand, offer the possibility of share price appreciation but carry the risk of market volatility.

For traders, it’s all about timing.

Dividend stocks tend to shine when equity markets are stable or trending higher. However, in a choppy or bearish environment, the appeal of a guaranteed near-5% bond yield can be hard to ignore.

As bond yields rise, dividend stocks must work harder to justify their place in an income portfolio. But for savvy traders, this competition creates opportunities. Whether you’re selling covered calls on Altria or scooping up shares of UHT on a pullback, there are plenty of ways to generate income — you just have to choose your battles wisely.

Keep an eye on the bond market and use these shifts to your advantage. Income is out there — you just need the right strategy to find it.

I’ll see you in the markets.

Chris Pulver
Chris Pulver Trading

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