Dividends not being paid out of earnings
Odey Asset Management
The FTSE is at 6,000, a level it was at five years ago and indeed in 2007/8 and in 2000. So far, we have only lost 16 years. However, the level isn't the cause of interest: it's what earnings have done between 2011 and today. In 2011, the earnings of the market were around £500, putting the index on 12x earnings. Today, the current earnings for the FTSE are £133.42 or 45.1x earnings. That puts the FTSE on an earnings yield of 2.21%, with a dividend yield of 4.2%, highlighting that dividends are not being paid out of earnings or at least only 50% of the dividend is paid out of earnings. Luckily the market is forecasting a strong recovery in profits over the next 12 months. However, this is difficult to square. The paradox is that central banks talk about the risk premium for equities being the earnings yield less the 10-year bond yield and that this should no longer be great because they have banished the business cycle by controlling the credit cycle. (VIEW LINK)
Crispin is one of Europe's most respected investors having delivered exceptional returns for his clients. Since he established Odey Asset Management in 1991, his flagship long-short strategy has compounded at almost 14% per annum net of all fees...