Investment income should be on the endangered species list.

I'm not kidding.

Investments that produce actual income are becoming rare. One hint comes from the Mother of All Investment Income, the U.S. Treasury. Not long ago the Treasury had a nice menagerie of offerings. You could by cute little bills that matured in 3 months, 6 months, or one year. You could also buy handy notes that matured in 2, 3, 5, or 10 years. And you could buy serious bonds that matured in 20 or 30 years.

Now they're dropping like flies.

The first to go was the 20-year Treasury bond. The last bunch of these was auctioned in January 1986. With only five years of issuance still outstanding, they're beginning to look like a gathering of World War I veterans.

Then came the demise of the three-year note. Last auctioned in March 1998, this poor bird is already extinct. The last one matured this March, right on schedule, and disappeared without a trace.

And now, as of February, the Treasury has announced that the one-year T-bill is history. The last one-year bills were issued on February 27. So, come February 28 next year the existing crowd will be gone.

This is only symptomatic of what investors are facing--- less and less income from fewer sources.

We can get the rest of the picture by taking a tour of the Morningstar stock database. It now boasts some 7,201 inhabitants. The largest is General Electric with a market capitalization of $482 billion. The smallest is PC ServiceSource with a market capitalization of less than $100,000.

Only 2,421 of the 7,201 pay actual dividends. The others, a two to one majority, apparently expect their shareholders to live on capital gains.

Among the companies that pay dividends, there isn't much to celebrate. Some 504 companies have yields under 1 percent, while 500 have yields between 1 and 2 percent and 471 have yields between 2 and 3 percent. The ranks get thinner each step upward. At the very top, there are 175 companies that pay yields greater than 8 percent. Most of the big dividend payers are REITs (Real Estate Investment Trusts).

The Distribution of Stock Dividend Yields, April 2001

Yield Range Number of Stocks Cumulative Percent of Stocks
No dividend 4780 66.4%
0 to less than 1.0 504 73.4
1.0 to less than 2.0 500 80.3
2.0 to less than 3.0 471 86.9
3.0 to less than 4.0 333 91.5
4.0 to less than 5.0 208 94.4
5.0 to less than 6.0 111 95.9
6.0 to less than 7.0 66 96.8
7.0 to less than 8.0 53 97.6
Over 8.0 175 NA
Source: Morningstar Principia Pro, April 30 data

While the disappearance of investment income isn't noticeable month to month, it's quite dramatic if you look back a few years. As recently as 1991 stocks were yielding an average of 3.24 percent and the 10-year constant maturity Treasury was yielding 7.86 percent. Mixed 50/50 the two provided a portfolio yield of 5.55 percent. So $18,018 of investment would produce $1,000 of annual income.

Today the dividend yield on stocks has fallen to 1.23 percent and the 10-year constant maturity Treasury is at 5.28 percent. The same 50/50 portfolio now produces a yield of 3.26 percent. So you need $30,675 to produce $1,000 of annual income. Worse, you now need $1,294 of income to enjoy the purchasing power $1,000 had in 1991. As a result, you now need $39,693 of investment to duplicate the purchasing power you could produce with less than half as much money in 1991.

For many readers--- the majority still working, saving, and hoping for a big killing on something--- the idea of a dearth of investment income may seem a bit quaint. Others--- perhaps a few looking over their shoulders at the experience of no-interest Japan--- know the visceral truth.

This could turn into a major problem.

Tuesday: A less known haven of secure, relatively high interest income.