Ten years later in March 2007 I did an updated market analysis:
|Traditional long-term investors have always sought a good dividend yield plus reasonable average annual appreciation. I am not talking momentum traders nor scalpers who go in an out numerous times a year. Rather, I refer to those who embrace the multi-billionaire Warren Buffett strategy of buying and holding for the long-term. This investment focus assigns great import to the stock's dividend yield.|
The 1997 analysis covered a 34-year period from 1941-1975. It concluded dividend yield is a prime factor in determining whether stocks (ie Dow & S&P Indices) rise or fall in the next 12 months.
Fast forward to March 2007, when the DOW average dividend yield was a mere 2.50%. As we all well know history does NOT always repeat. NONETHELESS, the then pitifully low dividend yield suggested Wall Street stocks might drop 10% in value during the next 12 months.
Some might counter-argue the early study (1941-1975) does NOT take into account the greatest bull market in history (1984-2000). Nevertheless, the original analysis did encompass the long bull of 1946-1972 and the 1973/74 stock market debacle. Therefore, in my view a miserly low 2.50% dividend yield does not augur well for rising stock prices during 2007...and perhaps well into 2008.
In conclusion Wall Street stocks at these levels do NOT inspire me with confidence. Moreover, I would even project this reasoning to most world stock markets, which remain over-valued...despite the recent sell-off.
30 March 2007
I. M. Vronsky
Within six months of my above analysis (March 30, 2007), the Dow peaked at 13600 in October 2007, and; began a terrible bear decline, falling 51% during the next 17 months to find bottom at 6500 in early March 2009.
FAST-FORWARD TO APRIL 18, 2011:
TODAY the DOW average dividend yield is again a paltry 2.76%. CONSEQUENTLY, if history is prologue, Wall Street stocks might soon begin a protracted decline.
Here's today's Dow Dividend Yield Table:
FRANKLY, I do NOT foresee a 51% decline for a number of reasons. However, a correction of 10% to 15% is most probably in the cards - as income hungry investors flee stocks and go to higher yielding Corporate Bonds.
I. M. Vronsky
Editor & Partner - Gold-Eagle