A Matter of Interest

Rarely could I find a FTSE 100 stock with a yield higher than its P/E ratio. When I did I invariably made money.

So what’s going on today? The table above lists FTSE 100 shares and almost all meet my criterion. Are they all going to cut their dividends? Unlikely I think. Is the inversion of yield and P/E ratio going to widen further? Possibly, but if so it will be a short term phenomenon. The most likely explanation is that these companies are seriously undervalued. Today in the newspaper I read FTSE chiefs are complaining about the flight of capital from the London Stock Exchange to overseas markets, in particular to the US.

There is no ‘normal’ for a P/E ratio but 15 is typical and most of the shares in the MoneyWeek list need to double to get up there. If they don’t at least the dividends far outstrip yields from bonds or savings accounts. So far I have bought Phoenix and Legal & General – and so far the former has gone down and the latter gone up. As usual I must await events. Good timin’ to buy, let’s see.