Thinking About Buying 10-Year Treasury Notes Yielding 5.3% Instead of Dividend Stocks Like Coca-Cola? Consider These 3 Factors First.

Yields on 10-year Treasuries have been skyrocketing in response to the latest Federal Reserve rate hikes and inflationary pressures, which could lead to further rate increases.

Here's why yields could continue climbing, why Treasury notes and bonds present a worthy alternative to dividend stocks, and factors investors should consider when comparing fixed income products to stocks.

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10-year yields hit 5.3%

The 10-year treasury yield is at 5.28% at the time of this writing -- which is the highest level since 2007. The two main reasons rates are rising are monetary policy and the U.S. national debt.

On Sept. 16, the Federal Reserve increased its benchmark interest rate for the first time since 2023 to a new target range of 3.75% to 4%. The Fed has a dual mandate to maximize employment and keep prices stable. Unemployment remains historically low at 4.1%, but inflationary pressures persist -- mainly due to higher fuel costs driven by elevated oil prices.

Mortgage and corporate borrowing rates are often benchmarked to the 10-year rate. So higher inflation effectively reduces consumer and corporate spending, which is meant to slow down the economy and price increases.

The national debt is now more than $40 trillion. According to U.S. government data, the average interest rate on that debt is 3.49% -- or $1.27 trillion per year. In 2025, the federal government collected $5.23 trillion in revenue and spent $7.01 trillion – resulting in a deficit of $1.78 trillion. Higher rates make it more expensive for the government to borrow money or refinance existing debt, which is appealing to bond buyers but could worsen the national debt problem. Whereas during the pandemic, the Fed was lowering rates, which decreased Treasury rates and made it less expensive to borrow money.

Comparing Treasury yields to dividend stocks

Treasury notes (two- to 10-year maturities) and Treasury bonds (20- to 30-year maturities) are often considered very low-risk assets because they are backed by the U.S. government, which collects taxes and can print money to pay its debts. Investing in dividend-paying stocks is riskier because those dividends are backed by corporate profits and balance sheets, which can vary in quality. Yields on 10-year Treasuries fell well below 1% in 2020. And even earlier this year, they were less than 4%. A 5.3% yield on a 10-year Treasury note provides a higher opportunity cost for investing in stocks.

For example, let's say an income investor were deciding between a 10-Year Treasury note yielding 5.3% or buying Coca-Cola (NYSE: KO) stock and holding it for 10 years. The Treasury note at 5.3% is much higher than Coke's 2.5% yield, putting pressure on Coke shares to rise by at least enough to offset the yield difference. However, Coke's earnings tend to increase in the mid-single digit percentage each year (regardless of how the economy is doing) thanks to its international footprint, a portfolio of brands spanning key nonalcoholic beverage categories (not just soda), and its recession resilience. That steady earnings growth, paired with Coke's premium valuation, has supported more than a doubling of Coke's stock price during the past decade. There's no guarantee that will happen over the next decade, but if Coke's earnings continue to climb, its stock price will likely do so as well, as long as the core investment thesis remains intact.

Reasons to choose dividend stocks over Treasury notes and bonds

The biggest mistake investors make when comparing Treasury notes to dividend stocks is assuming yields are stagnant. If yields continue to rise, existing 10-year Treasury notes will lose value because newly issued bonds have higher yields, making existing Treasuries less attractive. If your sole objective is to hold the Treasury note to maturity, the fluctuating value won't matter in the end because the principal is paid back once the note matures. But if you try to sell the note to someone else, the value could be less than par (what you paid) if rates keep rising. Or it could be higher than par if rates fall.

The iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) invests in long-dated Treasury bonds. The exchange-traded fund (ETF) yields 4.7% at the time of this writing and has been growing in lockstep with rising rates. But the ETF is down 46% in the last five years and has produced a negative 35% total return in that period, even when factoring in the yield, because the long-dated bonds it holds were issued at yields much lower than the current yield.

Again, an investor buying new-issue U.S. Treasury notes who plans to hold them to maturity doesn't need to worry about the fluctuating value. But it's a mistake to assume bonds are a stagnant asset class.

It's also a mistake to compare current yields on bonds versus companies with growing dividends. Coca-Cola has raised its dividend for 64 consecutive years. An investor buying Coke shares for $86 at the time of this writing will get an annualized dividend of $2.12 per share based on the current payout. But if Coke raises its dividend, for example, at a compound annual growth rate of 5% over the next 10 years, then the $2.12 per share annualized dividend will grow to $3.45 per share. That's a yield on cost of 4% -- meaning that same initial investment is now producing a far higher yield. That wouldn't be the case on long-term Treasury notes or long-dated Treasury bonds with fixed interest rates.

Finally, it's worth noting that investing in stocks can be more inflation-resistant than bonds. Coke can offset inflationary cost pressures by raising prices. Whereas buying a 10-year Treasury note at a fixed rate of 5.3% is vulnerable to inflation eroding the investment's real return.

Dividend stocks gain the long-term edge

Buying 10-year Treasury notes is more appealing now that rates are higher. Long-dated bond ETFs are especially attractive because ETF prices are at multi-year lows while yields have risen. It's also worth noting that the iShares 20+ Year Treasury Bond ETF pays a monthly dividend, which is more frequent than the 10-year Treasury notes, which make semiannual interest payments.

However, long-term investors who are more interested in total return than yield alone may still want to consider high-quality companies with growing earnings that can support future dividend increases, rather than overhauling their investment portfolios with fixed-income products.

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.