Dividends to Top Bond Rates as Stock ‘Cult’ Ends: Chart of Day

By Alexis Xydias

Jan. 9 (Bloomberg) -- Dividend yields for stocks that exceed interest rates will be the “new norm” as the deepening recession keeps equities from advancing, according to Cazenove Capital Management’s Robin Griffiths.

The CHART OF THE DAY tracks the gap between the dividend yield for the U.K.’s FTSE All-Share Index and the Bank of England’s benchmark rate. Stocks now pay out 2.91 percentage points more in dividends, near the highest spread since the equities data began in 1986, after the central bank cut the key rate to an all-time low of 1.5 percent yesterday.

Until October 2008, U.K. interest rates had exceeded dividend yields on stocks for two decades, excluding February and March 2003, weekly data compiled by Bloomberg show. The FTSE All-Share gauge, whose dividend yield is 4.41 percent, fell 0.2 percent yesterday.

“During the cult of the equity you tolerated a lower yield because you were bound to something called growth,” Griffiths said. “You now live in a world where growth may not be there.”

Stocks that pay more than bonds “will be the new norm as it was for hundreds of years until the 1950s,” he said.

Britain’s services industry is shrinking at close to the fastest pace in at least a dozen years, while house prices are tumbling the most since 1991. Strategists at New York-based Citigroup Inc. estimate profits at U.K. companies may fall 11 percent in 2009, the most among forecasts for eight regions.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net