A 5% long-term "risk free" rate is roughly equivalent to a company who makes a 'PE Ratio of 20'. Or in other terms: a $1 Billion company should be making $0.05

A 5% long-term "risk free" rate is roughly equivalent to a company who makes a 'PE Ratio of 20'. Or in other terms: a $1 Billion company should be making $0.05 Billion (or $50 Million/year) in profits to be comparable to a 10Y bond at 5%. Except... everyone accepts the fact that bonds from the US Treasury (the entity that can literally print US Dollars) is lower-risk than equity from a company. (Equity is junior: if companies go bankrupt they pay their debts first and equity secondly). So you "should" be making more money from equity than bonds/debt for it to make any amount of sense. Companies will have to change their PE ratios to compete in theory. The easiest way to do this is to... lose valuation. You can't just control profits so easily, so instead of being a $1 Billion company making $50 Million/year, it'd be easier to turn into a $0.5 Billion company making $50 Million/year (now a PE Ratio of 10, or clearly better than Bonds) Or so the theory of value-investing goes. Which... doesn't really work out in reality but hopefully you get the gist. ----------- Note that dividends are meaningless from this perspective. Profits are what matters. Companies take profits an invest into themselves, so it doesn't matter if the profits are emitted as dividends (ie: $50 Million returned to the shareholders in a dividend per year), or if the company buys a new $50 million factory each year. Either way, its "the shareholders property" and therefore equivalent. If the company buys a $50 million factory each year, then in theory, they've grown by $50 million bucks. Ex: the $1 Billion company is now a $1.05 Billion company, and are expected to make $52 Million next year. After all, the "bondholder" could have spent their 5% coupon on buying more bonds, so to be "equivalent" to the risk-free bond strategy, the company also has to grow exponentially. IE: Everything in the market is now encouraged to grow at 5% (or faster), just to keep up with "risk free government debt".