Sunday, January 1, 2012

Diary: Equity premium

The Equity Premium has increased to 5.89%, more than 2% higher than in July 2011. This is due to a combination of both a lowering of PE ratios and a lowering of the 10-year gilt since then. You can see my spreadsheet of calculations. Unfortunately, I am unable to offer a wider historical perspective of the premiums.

10-year gilts now have a yield of 1.98%. I chose 5 defensive shares at random, and they all had higher yields: Diageo 3.0%, Brit Amer Tobacco 4.2%, Tescos 3.8%, Scot & South Energy 6.2%, Uniliver 3.5%. These shares seem to offer much better value.

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