Dividend Payers Experience Multiple Expansion At Low Nominal Interest Rates
By David I. Templeton: A recent report from Fidelity Investments shows that multiples expand for dividend paying stocks with high payout ratios when nominal interest rates are at extremely low levels as rates are today.
The Blog of HORAN Capital Advisors
Essentially, the report indicates investors view high dividend payout equities as bond substitutes. The report states:
In a market with extraordinarily low nominal yields, the relationship supporting the risk premium between equity and fixed income is challenged, and stable high quality dividends can be viewed similarly to a bond coupon. Thus it would be logical for the market to value dividends within the prevailing yield structure of the fixed income market:
Price/Dividend = f (Interest Rates)
Undistributed earnings are still subject to economic uncertainties with investors expressing concern about a company's ability to effectivelyComplete Story »