S&P 500 Dividend Yield Surmounts the 30-Year Treasury

The last time that happened was during the financial crisis, Bespoke says.

Everyone’s upset about the inverted yield curve and what it means for the future (a recession in a year or so). But stock investors, at least, got some good news: The dividend yield of the S&P 500 climbed above the 30-year Treasury bond’s yield.

The broad-market stock index yields a tiny bit more than the 30-year, which closed Tuesday at 1.97%. There’s only one other instance, over the last four decades, that such a thing has happened.

That occurred in late 2008 through March 2009, the nadir of the financial crisis, according to Bespoke Investment Group—and marked the start of the bull run. The S&P’s yield almost went higher than the 30-year’s in mid-2016, with Britain’s vote to exit the European Union, but fell short.

The stock index’s higher yield should be a good portent for equities, according to Bespoke Cofounder Paul Hickey. “For an investor looking to hold something for the long term, it makes equities relatively attractive,” he told CNBC.

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Right now, investors are crowding into the perceived safety of Treasury paper, which is viewed as risk-free because the US never has defaulted and has the world’s largest economy. All that popularity bids up the price of Treasury bonds, thus lowering the yield. At the start of August, the 30-year stood at 2.44%.

Of course, the S&P 500 also yields more than shorter-term Treasuries, such as the benchmark 10-year. As of Monday, Bespoke’s report reckoned that “two-thirds of the stocks in the S&P 500 yield more than the five-year, more than 62% yield more than the 10-year, and slightly more than half yield more than the 30-year.”

Indeed, 25 members of the stock index have yields above 5%. A lot of that is owing to epic slides in some stock prices. The highest yielding of them all is Macerich, a real estate investment trust (REIT) that specializes in shopping malls, which is an unloved sector these days. The REIT yields an amazing 10.7%. Over the past 12 months, the trust has lost half its value.

Sometimes, earnings slips are a factor. But Altria, the tobacco giant that just announced its intent to re-merge with Phillip Morris, has had decent results, although the stock is down 22.5% over the previous 12 months. It sports a 7.1% yield.

At the beginning of August, by Bespoke’s count at the time, 173 S&P 500 companies had higher yields than the 30-year Treasury.

Certainly, high stock dividend yields often signal weakness in the issuing company. But for now, investors are being paid to risk it.

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Pension Funds Sue Novo Nordisk for $1.75 Billion over Alleged Collusion

Lawsuit claims pharmaceutical firm engaged in insulin price fixing, and misled investors.

Danish pharmaceutical company Novo Nordisk is facing a $1.75 billion lawsuit brought by a group of pension fund shareholders who allege the company engaged in insulin price fixing and issued misleading statements about the health of its US insulin business.

According to the complaint, Novo Nordisk allegedly colluded with pharmaceutical firms Sanofi, Eli Lilly, and Merck to increase the prices of their insulin drugs. It said the prices of the companies’ insulin products “skyrocketed over the past decade in a suspiciously close and synchronized manner.”

The lead plaintiffs include the Central States Pension Fund, Southeast and Southwest Areas Pension Fund, Oklahoma Firefighters Pension and Retirement System, Boston Retirement System, Employees’ Pension Plan of the City of Clearwater, and the Lehigh County Employees’ Retirement System. 

The plaintiffs say that during the class period, which is between April 30, 2015, and Oct. 27, 2016, Novo Nordisk reported “impressive revenue, operating profit growth, and sales growth.” They also said the company told investors that it would earn revenue and operating profit growth of between 5% and 9% in 2016, as well as 10% operating profit growth over the long-term.

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According to the complaint, while some of the company’s competitors acknowledged that insulin revenue would decline as a result of increased pricing pressures from pharmacy benefit manager, Novo Nordisk assured investors otherwise.

“In truth, Novo Nordisk was experiencing significant pricing pressure in the US and was only able to report ‘flat pricing’ for its drugs because the company entered into collusive agreements with its purported competitors,” said the complaint. “What’s more, the company’s reported revenue, operating profit, sales growth, and margins were overstated in that they were based on collusive price fixing.”

On Aug. 5, 2016, the company announced disappointing earnings for the second quarter of 2016, which the complaint alleges was because Novo Nordisk was no longer able to hide the pricing pressures it was facing. The plaintiffs claim these pricing pressures forced the company to lower its sales and operating growth targets for 2016.

This news caused the price of the company’s ADRs to fall to $49.87 on Aug. 5, 2016, from $55.20 on Aug. 4, or approximately 10% in one day, according to the complaint. On Aug. 8, 2016, Novo Nordisk held a management roundtable meeting in London to provide more details into the company’s business and pricing strategy.

The complaint cites an analyst report by financial services firm Kepler Cheuvreux on Aug. 9 that summarized the meeting and said that major net pricing upgrades in the US will be the exception as opposed to the norm, and that “there will be no quick rebound from the company’s stagnating growth.”  

The news allegedly caused the price of Novo Nordisk ADRs to decline even further to $47.13 per ADR on Aug. 8, a 15% drop from its Aug. 4 closing price.

In response to the lawsuit, Novo Nordisk said in an SEC filing that it “disagrees with the allegations and is prepared to defend the company in this matter.”  The company’s lawyers had filed a motion for the case to be dismissed, but that motion was denied.

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