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The Sunday Telegraph: How to get gilt-edged returns on the stock market

Business comment
By Dan Roberts, Business Editor, Sunday Telegraph
Last Updated: 12:28am GMT 18/03/2007

When Gordon Brown stands up in the Commons on Budget day, we all need a little something to keep us going during his relentless blizzard of billions. So here is a distracting factoid to squirrel away for that moment when you feel your ears begin to bleed on Wednesday.

Some bright chaps at Cazenove have worked out that you can get paid as much for owning shares in Britain’s biggest companies as you can for lending your money to Brown. In other words, dividend payments from the 10 largest FTSE100 companies are this year expected to yield almost exactly the same return (4.5 per cent) as 10-year government debt.

There are a number of conclusions that can be drawn from this – and, to be fair, not all of them are necessarily more interesting than listening to the Chancellor drone on – but suffice it to say, this is not normal. When Brown first started jutting his jaw out over the despatch box in 1997, the ratio between the two yields was double what it is now.

The really interesting thing it suggests is that shares in companies such as BP, Shell, Vodafone, Barclays, HBOS and Royal Bank of Scotland are still cheap relative to all the profits and cash they are throwing off. You would normally buy growth companies such as these in the hope that their share prices would go up, but in this case, as long as you are confident they can maintain the dividend, these shares could be worth owning for the income alone.

The other thing it tells you is that it is still relatively cheap to borrow money. Despite the Bank of England raising base rates, money market conditions remain exceptionally benign.

It is no coincidence that these are precisely the conditions that suit the flurry of leveraged takeovers we have seen recently: when public companies are handing out lots of cash and you can borrow money cheaply to acquire them, deals start to fly. The bigger the public company, the more immune they are from raiders, and the more their shares lag behind: one of the reasons why big cap companies have been poor performers in recent years.

A correction in the debt markets would still drag us all down with it, and, of course, the value of shares can go up and then down, down, down – just like the Chancellor’s reputation for fiscal prudence. But with all the market jitters and soul-searching of the past few weeks, it is easy to forget that UK plc is in fine form – it’s the public sector we all still have to worry about. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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