David Kuo: Ignore the noise if you want to get ahead of the market
Sunday 31 July 2011
The Western world is in an economic mess.
You would think that stock market would be dragged lower by the weight of worry. But you would be wrong.
Over the past 12 months, the Dow Jones Industrial Average has risen almost 20 per cent and the FTSE 100 index is some 11 per cent higher. In France, the CAC40 index has gained 4 per cent and Germany's DAX index has climbed some 18 per cent.
While it may be a good idea to have one eye on the economic troubles in Europe and America, we should also be monitoring how companies are performing. US companies such as IBM, Coca-Cola, Microsoft and Intel have reported double-digit growth in quarterly earnings. Most notable was Apple which posted a 125 per cent rise in third-quarter profits. So regardless of how dire Western economies may be in, businesses continue to seek out markets.
UK companies Vodafone, Burberry and BG Group are enjoying their day in the sun too. Of note is GlaxoSmithKline, which posted an operating profit of almost £2bn – more than triple the £641m it reported last year.
What is even more interesting is a recent report from Capita Registrars that pointed to the biggest payout in quarterly dividends by British companies since the collapse of Lehman Brothers in September 2008. The 27 per cent jump in dividend payout to more than £19bn was thanks to improved trading conditions and reinvigorated balance sheets.
An increase in payout generally indicates that businesses are confident about the future. Their optimism has yet to be reflected in the share price, which is why UK shares are valued at an undemanding 14 times profits. Companies are in rude health even though the countries in which they are headquartered are ill in bed.
David Kuo is director of financial advice site fool.co.uk
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