Market Notes
By CUSTOS
THE steady rise in share prices since the budget finally petered out on the day before the Whit- sun holiday. En route investors shugged off an alarming break on Wall Street and fourteen days of seamen's strike. How could the market push prices to near-record levels in such an unpromis- ing business climate? One answer is that in com- paring the present peak in prices with previous bursts of strength one is not comparing like with like. What has changed is the dividend yield basis of the market. The average return now on the FT-Actuaries 500 share index is just over . 5 per cent compared with 4 per cent and less in 1960, 1961 and 1962. The institutions look to the long term when buying, we are so often told. Well, a 5 per cent yield is not too bad u start to this sort of exercise.
At this point it will be objected that 5 per cent
average return is partly an illusion. There are dividend cuts in the pipeline. And in support of this view there are ICI's first quarter figures, announced at the end of last week. If there is no improvement in the group's performance during the rest of 1966 then the present dividend total will not be fully covered by earnings. This is a sobering thought, although nobody is suggesting that ICI will cut its dividend—the view is that others might in such circumstances. And if ICI is up against it, so, the argument runs, must a great number of other companies be.
The general argument for expecting dividend cuts this year is that profits are turning down at the very moment when dividend costs are higher because of the new tax system. But the results of the large companies announced, for instance, over the past four days do not support this view of profits. ASSOCIATED HOTELS' surplus is rising this year, so Will HAWKER SIDDELEY'S With its SOlid order book. MONTAGUE BURTON reports no change but WILMOT-BREEDEN has a recovery under way. SIMON ENGINEERING'S outturn should be a great deal better in 1966 than 1965.1NTER- NATIONAL PUBLISHING CORPORATION'S profits for 1965 are up. So, too, are OZALID'S. But the sea- men's strike means that CUNARD must sink into the red this year. If these eight companies pro- vide a reasonable cross-section of the whole mar- ket, then it is premature to say that widespread dividend cuts are just round the corner.
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