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How Will Income Streams Increase From Shares?
In the last two blogs we have discussed the fact that income has decreased from our investments over last couple of years and we are seeing the last stage of this play out at the moment. This has happened in prior periods throughout history and the income has always recovered to where it was and then over time continued to grow.
This time it will be no different to this, it will just take time and we also need to remember that in some instances we are facing a trade off between capital gain and income. For example, if we have a business that owns $200 million worth of property as valued by sales of similar assets but you could buy a pro rata share this company for $80 million on the share market would you not do this simply because it was not currently paying a dividend?
Now going forward, how will this position rectify itself and our investments return to paying income?
The answer is quite simple and relies on the fact that the impediments to why companies (or managed funds) were not paying dividends have now been in the main removed.
Also, companies are now looking to expand their profitability given the difficulty of the last couple of years. As of last week US companies are beating profit forecasts, and according to a survey from Bloomberg, analysts see the biggest two year earnings increase for companies since 1995. The consensus view is that S&P 500 profits may rise 35 percent in 2010 and 17 percent in 2011. This increased profitability will result in increased dividends, other things being equal.
Remember when we are talking about the life cycle of companies and economic fortunes of financial markets 3-4 years is considered a short period of time. We need to be asking what is going to happen on a “normalised” basis for the next 20 – 30 years.
This time it will be no different to this, it will just take time and we also need to remember that in some instances we are facing a trade off between capital gain and income. For example, if we have a business that owns $200 million worth of property as valued by sales of similar assets but you could buy a pro rata share this company for $80 million on the share market would you not do this simply because it was not currently paying a dividend?
Now going forward, how will this position rectify itself and our investments return to paying income?
The answer is quite simple and relies on the fact that the impediments to why companies (or managed funds) were not paying dividends have now been in the main removed.
Also, companies are now looking to expand their profitability given the difficulty of the last couple of years. As of last week US companies are beating profit forecasts, and according to a survey from Bloomberg, analysts see the biggest two year earnings increase for companies since 1995. The consensus view is that S&P 500 profits may rise 35 percent in 2010 and 17 percent in 2011. This increased profitability will result in increased dividends, other things being equal.
Remember when we are talking about the life cycle of companies and economic fortunes of financial markets 3-4 years is considered a short period of time. We need to be asking what is going to happen on a “normalised” basis for the next 20 – 30 years.
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