PIMCO’s Kashkari: Buy Equities on Dividends and Earnings

The new head of global equities for PIMCO said Monday that investors should turn to equities as an attractive asset class, and three factors made the class a winner: multiples, earnings, and dividends.

According to a Bloomberg report, the between the price-to-earnings (P/E) ratio of equities hit a 28-month low of 12.2 in August and then recovered to 12.5. The current gap between the P/E and its inverse, the earnings yield, at 8% of the measure’s price, is the biggest it has been since 2009, when it was the highest in Bloomberg data since 1962. It is also 6.1 percentage points higher than the rate on 10-year Treasuries. Dividend payout, the report also said, has passed that of bonds for the second time since the 1950s.

Neel Kashkari, who was named to his new position last week, said that the rewards in store for investors are substantial. In a television interview, he was quoted saying, “Equities offer returns in three different ways: multiples can expand, earnings can grow and through dividends. On all three factors, equities look very attractive.” Companies in the S&P 500 have beat earnings projections for 10 quarters in a row, and analysts have increased their forecast from $98.73 per share to $99.88 per share.