The ‘yield’ plays are in the sectors vulnerable to downturn
Brexit Schmexit. In the uncertain TINA (There Is No Alternative) world we find ourselves, traditional strategies looking for dividend yield security no longer carries the prudence moniker of years past. Especially as the sectors where you would expect to find a healthy cheque aren’t attractive anymore. Transports and pharmaceuticals are traditionally viewed as safe havens. However when Japan Airlines (9201) carries twice the yield of the JRs and the mainline drug companies float in the 2% range you tend to get the idea that these stocks are either fully priced or representative of market uncertainty. Even telecoms are in the mid 2% range. Japanese banks, brokers and auto companies are returning c.4~5%. The traditional defensives may still find a bit more relative gas in them before the market can’t stomach the levels.
Fig.1 highlights US unemployed persons. As America’s population has grown over the decades, naturally the number of unemployed even on a relatively steady state has climbed. What is striking is not so much that unemployment rises when the economy takes a hit but the 66 year linear pattern. We are approaching yet another inflection point and it corroborates the ‘Dire Straits for Central Bankers’ report of June 17th, 2016.
We analyse the relative unattractiveness of yield plays in Japan and conclude that while defensives might still have some gas left in the tank, there are few alternatives where one can really hide in the cyclicals world. Even looking at net cash and equity ratios TINA is not attractive in many cases.