Dividends4Life: Dividend Bubble?

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Dividend Bubble?

Posted by D4L | Sunday, February 12, 2012 | | 0 comments »

What's unique about Edison and Altria? They pay enormous dividends. And starved of yield with interest rates near 0%, investors are tripping over themselves to get dividends these days. S&P 500 companies with the highest dividend payouts currently have the highest P/E ratios. In 2007, it was the other way around: Stocks that didn't pay dividends had far higher valuations.

But don't get too comfortable with the dominance of dividends. There's a bad precedent here. Last decade, the Federal Reserve kept interest rates far too low for far too long. Starved of income from Treasuries, investors were tempted to search for yield wherever they could find it, which back then meant subprime mortgage bonds. You know how that went.

Source: Motley Fool

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