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Strategies & Market Trends : Value Line Investment Survey

VALU 38.15

-2.3%

12:59 PM EST

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From: OldAIMGuy	3/12/2009 3:02:00 PM
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Re: Value Line Median Dividen Yield............... I've been fiddling with the Value Line Median Dividend Yield information that's available on the front page of the Summary and Index section of their weekly standard edition. It occurred to me that if we consider the 13 Week U.S. Treasury a very "safe" vehicle, then the relative risk of the 1700 stock universe of Value Line could be surmised by their median dividend yield. If the Treasury yield is very high and Value Line's dividends were very low, it would seem that the relative safety of the treasuries would be a smart bet. During another period we might find the Treasury Coupon Rate very low and the dividend paid by the Value Line universe relatively high. Those times would seem to reward an investor for having money committed to the stock market. To make an indicator from this I took Value Line's Median Dividend Yield of all their stocks paying dividends and subtracted it from the relatively risk free 13 week Treasury Coupon rate. I then plotted that remainder against the S&P 500 going back 11 years. It does make for an interesting history and somewhat telling of the market risk at various times. Here's how it looks: Looking at this chart we see some of the 1998 higher risk environment, the brief pause in 1999 and the swelling of risk through the end of 2000. We then see the relatively steady decline of risk through the 9/11/01 attacks. After the markets stabilized from the initial attacks we see continuing decline of risk (almost as though 9/11 never happened) through the market bottom of late 02 into early 03. After that we see a reversal as risk starts to build to its 2007 level. While not perfect, I believe the extremes can be useful for gaining perspective on the relative risk we see for Equities vs shorter term bond investments. The current low level of apparent risk does need to be compared to other extremes. Back in 1974 the Value Line universe had a median yield of 7.8%, nearly double their current 4%. However, back in 1974 dividends were a significantly larger motive for investors than more recent times. The lowest I've seen the Value Line median yield was 1.6% back in 2007, 2006, March of 2005, April of 2002 and April of 1998. But it was only 2.3% at the market peak of 1987 just before the "crash." Again, I think we used to expect higher dividends before the "tech" stocks took charge of things. Since 1995 the 13T - VLMY average value is +1.88. The top 10% of the data is above +3.8 and the bottom 10% is below -0.85. In 2000 there was a long string of weeks above +3.8 indicating high risk. The current reading is the lowest since 1995 at -3.716 and would indicate a market that's heavily over-sold. Relative risk of investing with a 4% dividend compared to a 13 week Treasury rate of 0.284% would seem low. Comments? Best regards, Tom

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