Ask Colin

Weinstein specifies that Price/Dividend ratios of 14 to 17% (grossed up dividend yields of 5.88-7.14%) show uncommon bargains, whereas 26-30 (3.33-3.85%) show danger. Can these be applied to Australia?

I think your calculations are correct, except they would not be grossed up figures. There is no imputation system in the US and the statistics we get here are also not grossed up, but nominal yields.

I do not use the ratios, but I keep long-term charts of the ASX Dividend Yields for the All Ordinaries index. Likewise, I keep long-term charts of the All Ordinaries PE ratios. I now take the weekly figures out of the AFR.

I am not sure we can compare the rates for the US and Australian market. Instead I compare the current levels for the ASX with the historical levels for the same market. However, as Weinstein says, it is not a precise indicator and nor is it a good timing device. It is just some more evidence to show where we are in the cycle. The key thing is to recognise when we are at extreme levels and adjust our strategy accordingly.

One problem we have with the long-term data is that the ASX changed the methodology in the late 1980s, but did not provide complete revised historical figures, so care needs to be taken with data earlier than the mid 1980s.

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