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Atle Willems, CFA
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Atle Willems, CFA, is an equity investor with a long-term view investing in undervalued listed shares with solid operational track records and sensible balance sheets. He holds a master's degree in finance from Nottingham University Business School, a bachelor's degree in business... More
My company:
Liabridge
My blog:
EcPoFi - Economics, Politics, Finance
  • 10-year Average Earnings- And Dividend Yields, S&P 500 (As Of 3 Oct-12) 0 comments
    Oct 4, 2012 7:05 AM

    Earnings - and dividend yields as of 3 October 2012

    Based on the closing price of the S&P 500 index of 1,450.99 on 3 October 2012 and data from Professor Robert Shiller's home page, the current yields are as follows (please refer to the June 2012 analysis for background information):

    (click to enlarge)


    The earnings yield and the dividend yield dropped 0.95% and 1.31% respectively from that reported at the end of August. This was caused by the index increasing more than both earnings and dividends.

    (click to enlarge)

    (click to enlarge)

    The spread (the difference between earnings yield and interest rate) narrowed as a result of the price increase of the index, dropping from the 2.90% end of August figure to 2.81%. The spread remains considerable higher than the average since 1991. One (of many) likely reason for this, as previously reported, is that bond yields are artificially low due to the support from the Fed.

    (click to enlarge)

    (click to enlarge)

    On balance, the S&P 500 index remains bit cheaper than its historical average. Although the current earnings- and dividend yields are again less attractive than last month, the overall conclusion again remains largely unchanged from last month,

    For the long-term investor, the current yields by themselves indicate the market is a bit cheaper than average in a historical perspective and that by itself might indicate this is not a bad time to go long the index. Chances are also the Fed will continue to support the stock market by keeping interest rates down for the foreseeable future and to continue to further increase the money supply. But, there are problems ahead and chances are that this time Europe will ignite the next financial panic. Valuations will then become much more attractive than now. But relative to bonds (U.S. government bonds), the S&P 500 is a much more attractive investment for the long term investor.

    As reported a few weeks back, the Fed announced further "quantitative easing" (i.e. money printing) and promised to keep the federal funds rate close to zero "at least through mid-2015". This will clearly result in interest rates remaining low for the foreseeable future.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: Macro View
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