Equity risk premium key to better returns amid anxious stock buyers

One of the key indicators I look for in the stocks I buy is the equity risk premium. This is the exc...

One of the key indicators I look for in the stocks I buy is the equity risk premium. This is the excess yield offered by stocks over the yield of either conventional gilts or index-linked gilts to compensate for the risk of potential capital loss of equity investments. For example, if, over the last 100 years, the yield on gilts has averaged 2.5% and the dividend yield on stocks has averaged 4.6%, the equity risk premium would be an average of 2.1%. The equity risk premium is low when investors feel comfortable with stocks or when investors are optimistic about dividend growth. A high ris...