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So you want to know what the PE ratio of the JSE all share index is? Or the dividend yield of the all share index? Or perhaps the total yield (earnings) of the all share index is? Well you have come to the right place. This page takes a look at the JSE PE ratio, dividend yield as well as total yield of the JSE all share index since the start of 2007.
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JSE All Share Index Total Yield
So lets start off by taking a look at the JSE All Share Index's total yield (which is basically its earnings yield + dividend yield). Earnings yields can be defined as the percentage of each Rand invested in the company that was earned in profits. So if you paid R100 per share and their earnings for the year comes in at R6 a share, their earnings yield is 6%. And the dividend yield is the percentage that dividends paid makes up of the total share price. So if you paid R100 a share and they pay R3 a share in dividends the dividend yield is 3%. Thus the total yield in the example would be 6% +3% which is 9% (note this is before inflation).
So what does the total earnings yield of the JSE All share index look like? And what is the actual real yield (returns adjusted for inflation ) look like for the JSE All share index?
The line graph below shows the the total yield of the JSE all share index since the start of 2007 as well as the real total yield, which is the total yield after inflation has been removed.
So what does the total earnings yield of the JSE All share index look like? And what is the actual real yield (returns adjusted for inflation ) look like for the JSE All share index?
The line graph below shows the the total yield of the JSE all share index since the start of 2007 as well as the real total yield, which is the total yield after inflation has been removed.
So while the total yield looks pretty high for the JSE All share index, infact its the highest levels achieved since the end of 2012, when looking at the real total yield one can see that the actual return is a lot lower, just showing the impact inflation has and how it eats away at investors real earnings growth. And this is part of the reason that central banks, including South Africa's Reserve Bank has inflation targeting as their main mandate, as inflation erodes the buying power of individuals.
But returning back to the yields above. While the markets might look extremely cheap to commentators after the weak year (2018) we saw, this provides a strong case for why the believe it is cheap, with both the total yield and real total yield sitting at levels last seen around 6 years ago.
But returning back to the yields above. While the markets might look extremely cheap to commentators after the weak year (2018) we saw, this provides a strong case for why the believe it is cheap, with both the total yield and real total yield sitting at levels last seen around 6 years ago.
So what about the well quoted and overused PE ratio of the JSE All Share Index?
Well the graphic below shows the monthly PE ratio of the JSE All Share Index since the start of 2007. Well the PE ratio of the JSE is currently sitting at 16.4, while the average of the period (Jan 2007-Dec 2018 ) is 16.7. So yes the PE is relatively low, but considering the average over the period it is hardly screaming a cheap market, with the PE ratio being just 0.3 lower than its long term market average.
Well the graphic below shows the monthly PE ratio of the JSE All Share Index since the start of 2007. Well the PE ratio of the JSE is currently sitting at 16.4, while the average of the period (Jan 2007-Dec 2018 ) is 16.7. So yes the PE is relatively low, but considering the average over the period it is hardly screaming a cheap market, with the PE ratio being just 0.3 lower than its long term market average.
The PE ratio has seen a significant decline since August 2018, when it was sitting at 20.6 to the current 16.4, largely thanks to the continued decline in former market darling, Naspers (JSE:NPN). So what about the overall market's dividend yield? Are companies paying more in dividends? The line graph below shows the monthly dividend yield of the JSE All Share Index per month since the start of 2007.
While the current dividend yield of the market is at the highest levels since mid 2009, this is partly due to the slide in share prices recently which pushes up the dividend yield of the market. As the two graphics above show, as the PE ratio declines, the dividend yield increases. And it is due to this inverse relationship between the PE ratio and dividend yield that we prefer to look at the total yield and real total yield as this is the sum of the both. But make no mistake, there are a large number of firms listed on the JSE that are trading on exceptionally low PE ratios (perhaps undeservedly so) and very high dividend yields. And investors should look into buying quality shares currently on low PE ratios and high dividend yields. A few we can think of are asset managers Peregrine and Coronation.