Follow the dividend yield when buying shares

No valuation measure can help you to time the market. But dividend yields are a good guide to future returns.

Shell petrol station © ADRIAN DENNIS/AFP/Getty Images

Shell is just one high-yielding FTSE 100 stock
(Image credit: Shell petrol station © ADRIAN DENNIS/AFP/Getty Images)

With more than $16trn-worth of bonds sporting negative yields and the US stockmarket trading at valuations not seen except at the peak of the tech bubble, it's easy to assume that "everything is expensive". And yet, that's not strictly true. The gap between US stocks and the rest of the world is striking. American equities have massively outperformed both their developed world peers and emerging markets during the post-2009 equity rally. As a result, as Michael Mackenzie points out in the Financial Times, "a comparison of US and global equities through their dividend yields and price-to-earnings ratios bolsters the case for a reversal over the coming years that favours emerging markets and other developed world equities".

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.