Investors should be cautious when it comes to dividend yield, says Sam Morse, manager of the Fidelity Moneybuilder Growth Fund.

Last week saw the yield on UK shares hit 4.6 per cent, exceeding the yield on ten-year government bonds, at 4.4 per cent, for the first time in five years.

The last time that such a ‘cross-over’ occurred was in March 2003, the point which marked the low of the bear market in UK stocks during the first half of this decade.

However, Morse urges investors to be cautious about interpreting the cross-over as a buy signal: ‘The current level of dividend yield appears to be very attractive versus gilts, but this is no guarantee that we have reached the market low. In March 2003, the dividend yield also rose above the bank base rate, so with rates at five per cent we are not quite there yet.’

Morse also reminds investors that in 1974 the market experienced many false rallies, followed by major lurches downward.

‘When the bounce did come, in 1975, the market virtually doubled in a few months. I think we could be in the last phase of this bear market. My advice is to stay fully invested and reinvest your dividends,’ he concludes.