A self funded retiree goes to see their broker and says:
"The best deal I can find for a one year term deposit is 4.5% I can get a 90 day term deposit for 4.7% but by the time that matures, rates might be half a percent less than now. My electricity bill has been going up faster than that rate of return. What blue chip stocks can I get into that give a yield over 7% so I can keep my head above water?"
WBC dividend yield gross with franking credits: 8.9%
It wouldn't surprise me to see that yield come down to around 5% net, 7.14% with franking credits. 7% is a magic number. Double your money in ten years at 7%. That would represent a share price of $34.80.
Stocks don't go up in a straight line though.
If you bought at a price considerably cheaper than the current price, you are probably getting a grossed up yield at or above 10% (before income tax). Assuming no capital gains, and a steady dividend that is a mighty fine ROR for any investment. Double your money every seven years. That is a very impressive income stream. The stock market's long term accumulation ROR (dividends plus capital gains) is 10% over 100 years - and that includes the thirty year super-cycle boom we just went through. Who's to say the stock market won't remain flat for the next ten years?
I don't know if interest rates are going down any further but I reckon they won't be going up soon either.
Volume is only returning to the market is my guess. The demand for defensive income stocks is not exhausted yet. I won't be selling my bank stocks in a hurry given the yields I am getting.