The investment outlook is considerably improved by recent events. The ECB head, Mario Draghi, has come up with a viable plan for Europe, and the US Fed is embarking on a third round of asset purchases. While caution is still warranted, investors are increasingly edging back into the market. So, what to buy?
The answer is different for every investor. Not only will it depend on age, available capital and risk appetite, existing exposures are an important consideration. But for those investors underweight banks or Telstra, the dividend yields may still be a compelling argument. Here’s an updated table:
The estimates of future bank dividends factor growth of 3% – and no growth for Telstra. In my mind these are conservative estimates, with upside risk.
Nevertheless, when compared to deposit and bond rates, they may represent a good reason to take on the additional risk of investing in shares, particularly as that risk could see share prices rise as well as fall. And of course, many investors with an outlook of one year or more will view the dividend flow as a way to “ride out” share price fluctuations.
CMC Markets Blog 
Hey Guys, you are sounding like Real Estate agents talking the market up !
Third try by the Feds – other two didn’t work.
Europe has only tried to stem the bleeding – the root cause is still growing by the minute, and Greece must just be written off as it’s not salvagable
Hi Wayne – thanks for your comments – they’re a great example of the relentlessly negative approach that are a feature of the “glass half empty” environment markets have traversed over the last two years.
Interestingly, comments were much harsher when I suggested the Australian market was oversold at 4,110 (close today 4,402)
http://blog.cmcmarkets.com.au/2012/05/23/australia-200-oversold/
…or when I suggested dividend yields on banks and Telstra were a good reason for investors to consider buying at prices 5 – 15% below today’s closing prices
http://blog.cmcmarkets.com.au/2012/06/19/investor-alert-dividend-yield-trigger/
None of this is to say that the market can’t go down or that I get every call right (I don’t). While I respect your right to your own opinion, to me it looks like the balance of risk in the market over the next 1 – 6 months is on the upside.
You’ve got it right, Wayne, and I think we’ll all see the big downturn begin within the fortnight. Why need QE3 if 1 and 2 had worked? Similarly with the ECB’s efforts.
Thanks for contributing Gary – although I respectfully disagree.
Unemployment has dropped by more than 2% in the US, and the share market is trading at 5 year highs – while there are still issues, what would the US look like without QE?
Wrt Europe, bond markets have stabilised, budget cutting and debt reduction are under way in Italy and Spain, Germany (one of the wealthiest nations in the world) has come to the party. Again, there are still issues, and contraction over the next 12 months is likely, but the threat of an explosion or implosion appears to have receded.
You may be right, Wayne and Gary, that the QE 1 and 2 did not work, that was why they needed the QE 3, which will not work either. However, if they did not work for the US economy, they still worked for the stock market very well taking it to all times high for some indices and for nearly the top of the major ones. The QE 3 has had the same effect so far. We are not owners of a factory or retail shop in America (at least most of the readers of this blog are not), but traders, so we enjoy and greet anything that pushes the market up, if we are long. Even if this is ridiculous. For instance, it was really funny and against any common sense, when the market went up on bad employment and other data, because it meant that the Fed would need to come up with some support. It is like someone being happy to lose his job, because now he can apply for Centrelink unemployment benefit.
Pingback: Dividend Yield Update – Telstra and the Big Banks | CMC Markets Blog