Who needs gilts when dividends will do nicely?

With the City having all but lost interest in the war in Iraq and with investors re-focussing their attention on the state of the economy again, dividend yields seem back on the agenda.

Looking at the FTSE 100 index from that perspective, UK shares are, without doubt, cheap compared to European and US stocks.

The FTSE All Share currently yields a prospective 3.9 per cent. This compares to 3.2 per cent for France's CAC 40 index, 3.1 per cent for the DAX 30 in Germany and just 1.9 per cent for America's Standard and Poor's 500.

UK stocks also look great value when compared to bonds. On 12 March, the dividend yield on the FTSE All Share exceeded that of the 10 year gilt for the first time since 1957.

While the market has since rallied by more than 15 per cent, UK shares still look cheap. Currently, the dividend yield on the FTSE All Share compared to the yield on the 10-year gilt stands at its highest level since the early 1960s.

Furthermore, dividend pay-outs are forecast to grow nicely despite the clouds surrounding the UK economy. The dividends paid by UK companies over the 1980s and 1990s grew at a rate of 1.7 per cent per annum after inflation. If city analysts, who are predicting them to grow at between 1 per cent and 1.5 per cent over the next decade, are right, then shares should outperform gilts.

And investors shouldn't be put off buying shares in companies making losses. As long as they are generating cash they can still afford to pay dividends even if they are losing millions of pounds at the pre-tax level.

On an historic basis, UK dividend cover also looks sound at two times total company earnings, which is bang in line with the average over the past 30 years.

In the FTSE 100 index, the utility sector is home to some of the best yielding stocks. United Utilities, Kelda and Scottish Power, all stand out, yielding over 6 per cent. Elsewhere, BAT is worth highlighting. It enjoys a solid earnings stream and has an impressive 6.4 per cent prospective dividend yield.

ARM Holdings is too expensive

Investors seem to have a blind spot when it comes to the chip designer ARM Holdings. It has been the golden stock of the technology sector for so long that even after last autumn's devastating profit warning, its rating remains sky-high.

It is hard to see why because ARM's life is not getting any easier. Licensing activity – the main driver of its business – is still quiet. Eight licensing deals were signed in the quarter down from 22 in the same quarter a year before, while revenues from licensing have more than halved from a year ago to £12.1m.

The good news seems to be that life is not getting any worse. First-quarter profits were in line with forecasts at £6.1m after writing down the value of investments by £1.6m – mainly to cover the fall in value of its small stake in the technology company Superscape.

More importantly, its financial guidance hasn't changed and ARM is still confident it can meet expectations of about £130m of sales for the year. It also reckons it could well be first out of the semiconductor downturn on the premise that companies will need to use its technology to stay ahead to win new business.

But revenues for the second quarter are expected to be flat on the first quarter's £31m and an upturn is still out of sight. Analysts are forecasting ARM to make a profit of about £30m for 2003, giving earnings of roughly 2p a share and putting the stock on an expensive multiple of 26 times. The rating is too high. Avoid.

Coliseum can't offer winning team

To a nation of lager-loving armchair sports enthusiasts, the prospect of a few pints and the choice of hundreds of TV screens showing various sporting events under one roof is a match made in heaven. The concept has not gone unnoticed by Chris Akers, who made a packet from selling his online betting business to British Sky Broadcasting.

His cash shell, Coliseum Group, snapped up The Sports Cafe at the end of 2001 – best known for its flagship site on London's Haymarket – with the aim of rolling it out across the UK as a chain of leading sports bars.

But as yesterday's figures showed, Coliseum is still firmly in the warm-up phase and has yet to break into a sweat. There are just three sites up and trading – London, Birmingham and Manchester – although that is expected to rise to eight by this time next year.

The group posted a loss before tax of £1.1m against a comparable loss of £1.6m a year earlier, while sales slipped to £6.4m compared with £6.8m 12 months ago – reflecting the closure of its Cardiff site.

Faced with fierce competition on the high street, Coliseum has got its work cut out. The stock, unchanged at 14p last night, should be left on the bench.