Are Dividend Stocks Still Worth Buying?

Posted by D4L | Saturday, January 28, 2012 | | 0 comments »

Long favored by risk-averse retirees, dividend-paying stocks have been attracting investors of all stripes lately for their high yields and market-trumping returns. But as their popularity grows, even some advisers are starting to ask: Are dividend payers getting too pricey? Investors poured $31.3 billion into mutual funds and exchange-traded funds that invest in dividend payers last year, nearly five times the amount in 2010, according to researcher Lipper Inc.

That rush, however, is making many dividend payers more expensive, say advisers. Historically, dividend stocks trade at lower price-to-earnings ratios, with the expectation that they'll grow less quickly than other stocks. While that's still the case, the gap between payers and non-payers is shrinking. To avoid overpaying for income, advisers say investors should focus on companies that are still growing their dividends, instead of looking for the highest current yields. "Dividend growers are great inflation protection because that yield is increasing every year," says Steven Roge, a portfolio manager at R.W. Roge & Company.

Source: SmartMoney

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