Dividends Make Comeback, Equity Valuations Below Historical Normal (ING)


Dividends Make a Comeback

by Douglas Coté, Chief Market Strategist, ING Investment Management

Returning wealth to shareholders is as American as apple pie. Unfortunately, in the last few weeks American companies have been denied this right by the Federal Reserve, in a sign that the financial system still is not fully healed despite an enormous bull market that launched in earnest at the end of the third quarter 2011 as the S&P 500 crosses the 1400 threshold. Dividends though, are making a comeback across sectors and an important part of an investor’s return. Please see "Dividend Yields" on page 13 of ING Global Perspectives for a view of the attractiveness of stocks on this measure.

Equity valuations below historic normal

It is not too late. That is, it is not too late to join in on this bull market. Sure, the first quarter was the best since 1998, and for the last six months U.S. global equity markets are up near 30%, and still there is plenty of upside potential. Let’s look at it. The forward price-to-earnings ratio (P/E) is a meager 13.25 based on our forecast of $105 per share for 2012. The historic normal P/E is 15, and based on this the market, the S&P500 could increase another 13% through year end. Compare that to a near zero return on CDs, money market, and other savings vehicles. Please see "Stock vs. Bond Valuation" on page 12 of ING Global Perspectives.

You can also scan ING's Global Perspectives Monthly Book below in the slidedeck:

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