The piece below is actually an integral part of Dow Theory. Charles Dow placed great emphasis on dividend yields, and Mr. Vronsky, who is editor and a partner of the great “Gold-Eagle” site, is obviously a serious student of the stock market. This piece by Mr. Vronsky should be of interest to all my subscribers. – Richard Russell Dow Theory Letters

2011 Echoes From The Past (Part 2)

By  I. M. Vronsky

Stock Indices Forecasts Based On Dividend Yields

In March 1997 I did an analysis addressing Stock Evaluation based upon Dividend Yield.

Ten years later in March 2007 I did an updated market analysis.

On April 17, 2011 I posted 2011 Echoes From The Past (Part 1).

The above three studies addressed one of the most fundamental and basic evaluation techniques, based upon DIVIDEND YIELD of the stock index. The principal theory is that if the Average Dividend Yield is too low, it reflects an over evaluation of the stocks making up the index.…ie stocks are over-bought or too high in price. Consequently, a stock market correction will cause the Average Dividend Yield to rise to acceptable levels.

A simple test of the dividend yield as a forecaster of future stock prices is presented in the table below (courtesy of “Stock Market Logic”). Shown are the one year returns which have ensued from various DJIA dividend yield intervals since 1941.

…..read more and view more charts HERE

Brief Excerpt from Richard Russell’s Dow Theory Letters. One of the best values anywhere in the financial world at only a $300 subscription to get his DAILY report for a year. HERE to subscribe. Amongst his achievements Richard was in cash before the 2008/2009 Crash and he has been Bullish Gold since below $300 Ed Note: Richard Russell is bullish Silver and holds one of the largest single positions he has held since the 1950’s in the precious metals.