Is the party over for dividend stocks?

The near-zero interest rate environment of the last eight years has driven millions of income-seeking investors into stocks — particularly into those paying out decent dividends. Between the dividends and the rise in stock prices, the strategy has paid off handsomely, with total returns far exceeding the coupons on investment grade bonds. With valuations near historical highs and interest rates rising in the U.S., however, the game has changed for investors in high-yield, dividend-paying stocks. They no longer have the wind at their backs.

"Valuations [across high-dividend-paying sectors] are at the top of their historical ranges," said Gibbs, who helps manage the S&P Dividend Income and Growth Fund. The fund invests in high-quality stocks with at least a 10-year record of increasing earnings and dividend payouts. Her fund is still up 17 percent in the year to date versus 10 percent for the S&P 500, but she said it has lost about 2 percent of its outperformance in the fourth quarter. Regardless, she is still recommending high-quality dividend stocks to her conservative investors. "They don't go up as much as the market but they don't come down as much either," said Gibbs. "I expect some dips, but companies with high yields, rising earnings and rising dividends are lifeboats in volatile markets."

Source: CNBC

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