|  AUG 1991

Price/Dividends Ratio Revisited by Arthur A. Merrill, C.M.T.

Price/Dividends Ratio Revisited by Arthur A. Merrill, C.M.T. In 1988 Merrill showed that the price/dividends ratio was useful in calling the 1987 crash. What's the outlook today? In the October 1988 issue of STOCKS & COMMODITIES, I described the usefulness of the ratio of price to dividends in calling the 1987 crash. It shouted warnings. What is the situation today? To review, Figure 1 is the long-term chart of the ratio, after filtering out all swings of the Dow Jones Industrial Average (DJIA) of less than 20%. Figure 2 brings the data up to date and includes a 10-year history. It's a quarterly chart. The index is the number of dollars required to buy enough DJIA stocks to yield $1.00 of dividends. It's the inverse of the yield. The ratio corrects for inflation. Both the numerator (price) and the denominator (volume) are expressed in dollars, so the dollar value cancels out.

by Arthur A. Merrill, C.M.T.