Equities bask in "weird world" of negative yields

jueves 12 de febrero de 2015 13:09 GYT

* Gap between dividend, bond yields close to record

* Solid earnings season, cash flow yield also supportive

* Banks returning more cash, energy dividends look vulnerable

By Alistair Smout and Blaise Robinson

LONDON, Feb 12 (Reuters) - Investors are pouring money into stocks as bond yields turn negative, setting aside concerns over whether political events and flagging growth will derail Europe's stock-market rally of the last few years.

Central banks have been driving interest rates down to zero to revive their economies and avoid deflation, in a move that has given equities a leg up.

The gap between the dividend yields on European stocks versus benchmark bond yields is close to a record high of 3 percent, with the number closer to 6 percent including earnings yield, according to Thomson Reuters data.

While an average dividend yield of 3.5 percent might not be much to write home about when inflation is at 2 percent, it looks much more attractive when some $3.6 trillion of government bonds are trading with negative yields, as JPMorgan's findings last month showed.

The European earnings season has got off to a good start - 62 percent of those reporting have beaten or met forecasts - and 75 percent of European companies have a free cashflow yield above their bond yields, according to Credit Suisse.   Continuación...