Dividends, valuations, debt and deflation

After my piece about markets last week looking at the technical picture I thought I would share with you some interesting pieces I have seen recently on dividends, downside levels in terms of valuations plus a macro piece on debt and deflation.

First up is the Quarterly Dividend Monitor from Capita which you can download by clicking the highlighted link. This looks at the prospects for dividends and the effects of currency moves so far this year. The image below is an interesting table from this document looking at the growth year on year from what they deem to cyclical and defensive sectors. Reasonably topical given the downgrade to Glaxo's dividend forecasts this week and given how much the top 10 stocks in the UK contribute to the overall income. 

Click to enlarge

Hat tip for the above to John Kingham at UKValueInvestor.com as he shared a link to this report in his interesting piece entitled How Low can FTSE 100 go? He specialises in using CAPE 10 year earnings as the basis for his valuation screening and he applies this to FTSE as well as looking at possible dividend yields at various lower levels. Worth a read as he points out that:

"For example, at 5,000 the FTSE 100’s CAPE would be 10. If it fell to 4,000 then its CAPE would be 8 and at 3,500 its CAPE would be 7.  Alternatively, you could look at dividend yields.

The Capita Dividend Monitor expects total FTSE 100 dividends in 2015 to be around £85 billion, which equates to approximately 201 index points.

If that were correct then at 5,000 the FTSE 100 would have a yield of 4%. That’s high, but not unfeasible high.

At 4,000 the large-cap index would be yielding 5% and at 3,500 it would be yielding 5.7%.

For some context, the market was yielding about 6% at the very bottom of the financial market crash in 2009."

However he does not factor in any decline in earnings or dividends if the fall was on the back of another slow down or recession but I guess as it is a 10 year average it shouldn't make too much difference to the above PE numbers but the yield support might turn out to be less. He offers a free weekly e-mail which can have some interesting stuff in it, otherwise it is a subscription based service based on his research which looks sensible enough although I can't say I have tried it. There is also a good article looking at similar things on the Daily Telegraph today too.

Next up is another John - John Mauldin who I have recommend in the past. If you have not signed up for his free weekly investment and economics e-mail called Thoughts from the Front line then I would highly recommend you do so at his website. Last weeks called the Flat Debt Society was particularly thought provoking and well worth reading if you have not seen it. It is particularly relevant as the Fed tries to withdraw QE and given the recent market reaction to that and other geo-political events. In particular the following quote from the piece was particularly worrying and may encourage you to read it or not as the case may be:

"When there is no inflation, the choices are between a deflationary boom and a deflationary
bust. And the sober reality is that we move from one to the other only when the stock
market crashes. What creates the recession are not excess inventories or capital spending as
in an inflationary period but the collapse in asset prices which had been pumped up by the
general mood of optimism."

So on that bombshell I'll leave it for this week and hope you have a great weekend - don't worry be happy - I do believe that's a song - see the website for the video below if you are reading this on the e-mail. Ironically it not only features a man on a window ledge but also appears to feature a cameo appearance from Robin Williams, shame he didn't remember it.