Fallen share prices drive dividend yields up

Here is the second installment of Dale’s weekly market report. Dale Gillham is chief analyst at share investment company Wealth Within and provides his perspective on what happened in the markets over the last week and what’s ahead.

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Depending on where the economy is in regards to the business cycle, there will always be those who will win and those who will lose. In today’s current economic conditions the winners are those who are generating a high income from their investments as interest rates continue to rise while others are struggling to meet their mortgage repayments.

Falling share prices in recent months has caused dividend yields to rise considerably, and it should come as no surprise to find Centro and Allco with the highest yields at 128.55% and 127.54% respectively. That said I am not suggesting you buy these shares to capitalise on the income, as the risk to your capital is likely to be much higher than the potential return right now. But it does highlight that there are some great opportunities for those seeking higher income with a longer term outlook.

Of the banks Suncorp pays the highest dividend at 8.9% followed by St George at 7.5% whilst the best of the big 4 is NAB at 6.97%. All of the banks are paying fully franked dividends, which means the actual return is much higher and with returns like this you can bet there are many retirees are smiling all the way to the bank.

So what can we expect in the market?

The market fell away earlier this week and instead of finding support at 5222, price continued down to form a new low at 5164 points. Right now the market is very sensitive as it continues to over react to any news, which makes it very difficult to determine with any sort of accuracy what will unfold in the short term.

That said I believe the market will be up over the next one to two weeks as many bargain hunters come in to buy what is perceived to be cheap shares right now. While this strategy is fine if you take a long term view of 3 to 5 years, it is not the smartest strategy if you are seeking quick returns as the market is yet to define a direction. If the market does rise over the next two weeks, I believe it will reach a target of between 5500 and 5700 points but only time will tell.

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Look out for an upcoming give away related to this report next week!