Right now, the stock market is all about numbers. The wrong numbers. As traders screens flash red,the headlines are all shouting abouthowmuch money is beingwiped off global stock markets.
It is easy to be distracted, given how dramatic the figures are.The FTSE 100 lost 91bn on Black Monday, itsworst trading day in four years. Then the Dowlost 1000 points on opening, its worst start on record. More than $5tr has been wiped off global stock markets since 11 August, less than two weeks ago.
As always, it pays to look behind the headline numbers, to get a more rounded picture of what all of this really means to investors. And when you do that, some surprising numbers emerge.
Yield To The Yield
The current meltdown is certainly unnerving, but it is also throwing up some thrillingfigures as well. Like this one: the average yield on the FTSE 100 is now 4.4%.
Now thats a number I like. It means that if you buy a FTSE 100 tracker, you are hookinginto an income of 4.4% a year, onethat is likely to rise in future. By comparison, the average savings account pays just 0.65%. Base rate is 0.5%. And the CPI rate of inflation for July was just 0.1%. In other words, buying the UKs benchmark index through a low-cost tracker will give you an income worth an incredible44 times current inflation.
If you prefer to buy individual large cap FTSE 100 stocks, which include the biggest and most solid companies in the UK, you can securean even more insaneyield. The yield is calculated by dividing the companys dividend by its share price. So if the dividend is 5p, and the stock trades at 1, it yields 5%.
Whenshare prices fall, yields rise. And when shares plunge violently, yields soar just as violently, which is exactly what is happening right now.
Golden Years
Mining giant BHP Billiton is down 28% in the last six months alone. It now yields a juicy 7.5%, which is 75 times inflation. And this is supposed to be a growth stock. Oil majorsBPand Royal Dutch Shell are both down over 20% inthe same period, and yield more than 7.3%. That is sheer black gold. Now these stocks are risky right now, given the commodity price slide, but the rewards have also risen proportionately.
Global banking behemothHSBC Holdings has been hit particularly hard, given its exposure to China, but after falling 14% in six months it now yield 6.45%. Thats right, almost 65 times inflation. GlaxoSmithKline yields more than 60 times inflation. SSE yields 59 times inflation, Vodafone yields 50 times. I could go on.
These yieldsarent guaranteed, but that is a chance you take.
Dreamon
The last six or sevenyears areaccepted as a disaster for savers, by wiping out the returns on cash. Buttodays no-inflation world is redressing the balance with a vengeance, especially for long-term investors willing to accept short-term stock market turbulence. This weeks crash is an income-seekers dream.
I cant remember a time when dividends offered such an inflation-crushing return. If inflation was at 2%, the Bank of Englands supposed target,that FTSE 100 tracker would need to yield 88% to maintainthe same inflation-to-yield ratio. BHP Billiton would need to yield 150%.
These are crazy figures, but asthe events of this week have shown, we live in an age of crazy numbers. Top FTSE 100 stocks yielding between 50 and 70 times inflation is one of the craziest of all. And for those wondering whether to brave todays turmoil, one of the most tempting.
Plenty more FTSE 100 stocks now offer yields of between 40 times more than 70 times inflation.
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The Motley Fool has recommended shares in HSBC and GlaxoSmithKline.