Dividends4Life: Time to Rebalance Those Dividend Stocks

Time to Rebalance Those Dividend Stocks

Posted by D4L | Tuesday, October 25, 2011 | | 0 comments »

This past weekend, a column in Barron’s quoted a research note by Alliance Bernstein’s chief market strategist, Vadim Zlotnikov, which asserted that dividend-paying stocks had become the “most crowded trade in the world.” The research report, available here, doesn’t say that the high-dividend universe is necessarily a sell. Instead, it recommends periodic rebalancing into less crowded trades such as higher-beta, cyclical stocks.

It’s difficult to argue with that kind of measured, contrarian thinking. Rebalancing from outperformers to laggards is a wiser move from a longer-term standpoint. However, it seems unlikely that high-beta names will start outperforming their high-dividend counterparts anytime soon. In short, as long as the “relative yield” trade remains in vogue, so should dividend-paying stocks. The event that would bring a reversal of this trend would be a sudden upside surprise in the global economy, which would drive Treasury yields substantially higher and fuel an extended “risk-on” trade. It’s difficult to envision this type of sea change occurring in the immediate future, even if Europe’s policymakers manage to make meaningful progress in containing the debt crisis.

Source: InvestorPlace

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