Dividend Stocks Good, But Too Pricey

Posted by D4L | Friday, November 09, 2012 | | 0 comments »

There’s no denying the attraction of dividend stocks. ETFs and mutual funds with a dividend focus have been pulling in a ton of money over the past 12-18 months, in large part as investors search high and low for income. With bond yields so low, investors are seeking alternatives in equity dividends. In fact, dividends have become so popular, that some analysts and market watchers wonder whether dividend stocks have entered “bubble” territory.

So let’s answer that one right off the bat: are dividend stocks in a “bubble”? No. Are they overpriced? Well, that’s an entirely different question. Judging from the data I’ve seen over the past little while, dividend stocks are getting pricey. In fact, high-yield stocks (that is, stocks with dividends 20 per cent or more higher than the overall S&P 500) are trading at a modest premium to the broader-based U.S. market. One final point I’d like to make when it comes to investing in dividend stocks: dividends are all well and good, but dividend growth is usually better.

Source: Globe And Mail

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