Divvying up Returns: The Economist September 4, 2010

1. If real dividend barely grow over the long term, then a forecast of stagnant nominal dividends may simply reflect investor's expectations of zero inflation.
   
2. That low inflation outlook is indicated by the level of core European yields.
   
3. Such low bond yields do give the equity bulls one more argument- that dividend yields look good by comparison.
   
   1. Germany's equities yield 2.9% and its ten-year bonds yield just 2.1%
      
   2. Equity yield more that government bonds in Britain as well.
      
4. Even if dividends did turn out to be stagnant for the next decade, investors would still get a higher income from equities than from government bonds.
   
5. And IF BY ANY CHANCE inflation were to take off, dividends would rise whereas government bonds would look horribly overpriced.
   
6. The prospect for equities may not be great, in other words-but they may still be the best of a bad lot.