yields are high

It's looking gloomy out there. The S&P 500 is down 12% year to date, led by the financial sector, which has lost one-fourth of its valuation.

Amid all the doom and gloom, one silver lining has drawn little attention: Dividend yields are the highest they've been more than a dozen years.

The recent market plunge has increased the S&P 500's dividend yield to 2.2%, its highest level since December 1995. Not even during the aftermath of the tech bubble collapse in the fall of 2002 -- when the S&P 500 traded at a paltry 815 -- did the yield break 2.0%.

But high dividend yields aren't the only reason this is a great time to be in the market -- stocks are also cheaper than trusty bonds.

The 10-year Treasury bond currently yields 4%. The equivalent measure of return for stocks is the earnings yield (earnings divided by price) -- and it currently stands at 5.5% for the S&P 500.

This divergence is unusual -- and a potential boon for investors. According to renowned value investor Arnold Van Den Berg of Century Management, (whose firm returned 13% net of fees vs. 6% for the S&P 500 over the past 10 years):

The usual difference between a bond yield and stock earnings yield is about 1%. For example, if investors can get 6.3% on a guaranteed bond they are willing to accept 1% less, or a 5.3% earnings yield on a stock. The reason for this is that if you have a 5.3% stock earnings yield and it is growing at 7%, it will equal your 6.3% bond yield in about 3 years. Anytime thereafter, the stock earnings yield will increase by 7% per year.

Investors are usually willing to accept a lower yield in stocks, because of the presumption of future growth. Right now, however, investors can get that growth at a better price than bonds -- and with the added bonus of high dividend yields.

Earnings yields like this suggest the market thinks earnings are likely to fall. But I would counter that even if earnings fell, the S&P 500 still would yield almost equal to the Treasury bond rate.

The combination of high dividend and earnings yields relative to bond yields means that this is a great time to buy dividend stocks.