Equity yields likely to stay squeezed

By Mark Westwood,a fund manager at LeggMason Investors Over the next decade, returns from equities are unlikely to equal the annual gains of 20% or so that investors achieved for much of the 1990s. According to the dividend discount economic model, the return from equities comes from the current dividend yield plus dividend growth. The current yield of the market is about 3.3%. Over the long term, dividends are likely to grow at the same rate as the economy. If we assume that real GDP grows at 2.5% a year, and inflation averages 2%, then in future we can expect a return of roughly ...