For Immediate Release
Chicago, IL – October 12 , 2010 – Zacks Research Equity Strategist, Dirk Van Dijk says that S&P 500 earnings are continuing to show red ink. He tracks companies on the Zacks.com web site, naming names, while forecasting trends for the months ahead.
So Far, So Good
Earnings will have fully recovered by mid-2011, and that full-year 2011 earnings will be 8.5% above full-year 2007 earnings (before the great recession started). That is years before we are likely to see a full recovery in the job market.
Collectively the 500 firms in the S&P 500 earned $546.0 billion in “2009,” and that is going to grow to $772.5 billion this year and $903.9 billion in 2011. Translated into “EPS” for the index, earnings are expected to rise from $57.61 in 2009 to $71.55 in 2010 and $95.71 in 2011.
In other words, then, the S&P 500 is selling for 20.1x 2009 earnings, but just 14.2x 2010 and 12.1x 2011 earnings. By historical standards that is quite cheap. Normally, when interest rates and inflation are low, P/E ratios are higher than average. Well, we currently have some of the lowest rates of inflation in decades and interest rates are at near record lows.
It only costs the government 2.38% to borrow for 10 years. It is not hard to find good, solid blue chip companies that are providing dividend yields of more than that, and not just a bunch of electric utilities, either. One thing is certain, the coupon on a 10-year T-note will not increase over the next 10 years. The odds of the likes of Merk (MRK), 4.15%, Intel (INTC), 3.26% or Procter & Gamble (PG), 3.20% increasing their dividend in the next 10 years is pretty high.
Currently 145 S&P 500 stocks yield over 2.55%, and 95 of those have payout ratios of less than 60%. Earnings that are not paid out in dividends are reinvested for future growth, or are used to buy back stock, which also lifts earnings per share. Based on this year’s earnings, the earnings yield is 7.04% and based on next year it is 8.26%.
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Contact: Dirk Van Dijk, CFA
Company: Zacks.com
Phone: 312-265-9211
Email: pr@zacks.com
Visit: www.zacks.com
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