What’s the Better Investment Right Now: Treasury Notes or Dividend Stocks?


At a time of economic uncertainty and inflation, many are asking which is the better investment in the current environment – treasury notes or dividend stocks? Find out the answer, plus compare the current situation to historical trends.

The current outlook on investing in treasuries

Since 2000, the two-year treasury rate has rarely exceeded a yield of four percent. But that changed on September 30, when the right jumped up to 4.22 percent, The Motley Fool reported.

On the positive side of treasuries, you’re practically guaranteed to get paid back the money you initially invested and get paid your interest if you hold the bond to maturity. The only way you’d lose is that the US government defaults on its loans and that is very, very unlikely to happen.

On the negative side, investors can lose money on Treasuries too. One way is selling them before their maturation date. Another factor is the way in which bonds and no prices fluctuate according to the current yield of new bonds. This becomes a problem if you want to get out early and sell. If the rate is higher on new bonds, then your lower-yielding bond will be worth less. However, if the rate for new bonds is lower, your older bond with a higher yield will be worth more.

Currently, trading U.S. Treasury bonds is down this year as no one seeks to purchase old bonds and notes that have rock-bottom yields.

The current outlook on investing in dividend stocks

In some situations, however, treasuries may not be the best option, especially if you can hang on over the long haul.

Historically, dividend stocks consistently outperform bonds in terms of yields.

For example, since 2010, AT&T has averaged about a 7% yield, which is close to double that of treasuries.

The downside is that a slowing economy can hurt dividends.

For example, in early 2022, after multiple decades of growth, AT&T’s dividend payout was cut in half. In the past year, its stock price has fallen almost 25 percent.

Another thing to consider is inflation. While the two-year note is yielding 4.22 percent, the current rate of inflation is roughly double. This means you are losing money with bonds. Stocks typically yield more in the long run.

Long-term return comparison: large-cap stocks vs. long-term bonds

October 1929 to Present (Great Depression): Stocks 9.59% / Bonds: 5.59%

October 1987 to Present (Black Monday): Stocks 10.34% / Bonds 8.09%

March 2000 to Present (Dot Com Bubble): Stocks 7.48% / Bonds 6.74%

September 2008 to Present (Great Recession): Stocks 10.32% / Bonds 5.79%