Friday Email: 14 November 2014

The FTSE 100 has had another good week rising almost 100 points and the October correction has almost been eradicated leaving our target of the index over 7000 by the year end easily achievable. When the index hit 6076 in October, it was looking a little far fetched. Obviously markets do not go in a straight line and there is plenty of time left between now and the Santa rally for some pretty bad days. 17 companies that we cover declared their dividends in the week past and only 4 managed double digit increases; Workspace, Aveva, Burberry (all 10%) and TalkTalk who raised by 15%.

Stock Market sentiment is the most important driver of shares, more so even than fundamentals up to a point. Obviously, the fundamentals naturally underpin shares so you would not see a company with a sustainable dividend yield of 25%. However to illustrate sentiment we will have a look at two companies that reported yesterday. Vedanta and SABMiller. Both produced dollar denominated dividend increases. Vedanta produced an increase of 4.5% and SABMiller produced a smaller increase of 4%. In the years from 2007 through to the year 2014, Vedanta has increased its dividend by similar amounts to SABMiller in each year and overall has actually outperformed SAB from a dividend perspective with a total increase in the period of 105.9% compared to SAB's 96.25% with the gap set to open more this year if Thursday's declarations carry on into the final dividend. A look at their share price performance over the period reveals a very different story. Sentiment for natural resource stocks is on its knees as we are near the bottom of the cycle, whereas beverage companies trade on very high multiples and relatively low yields. Go back four or five years and the picture would have been the opposite. Vedanta is not a one trick pony (unlike an oil producer) and represents very good long term value from here.

The week ahead builds upon the momentum of the past two weeks with a good deal of companies reporting to the market including one of our favourites, Easyjet, which has been rising strongly lately. It, like Carnival, also a strong riser, will be big beneficiaries of the collapse in the oil price as they can hedge further and further out to lock in profits and cash flow. Many traders may sell the news when the numbers come out and they are expected to be good. We could see a special dividend and we will definitely will see a strong rise in the ordinary dividend as the payout ratio increases to 40%.

One of our members mentioned last week that I overlooked Lancashire holdings who declared a special dividend last week. This coming Thursday they go ex-dividend for $1.20 (76.5p), which is a very hefty 11.95% for the one dividend. The share price is 640p. This brings the total paid out in dividends over the past 4 years to 420.39 pence.