Dividend Stocks: The Next Bubble?

Bubbleologists may be misreading the dividend frenzy. Wall Street generally attributes the latest rush to dividends as a result of the persistent Euro crisis and recent hiccups in the China growth story. Fearing a global slowdown, the thinking goes, investors are shifting out of economy-sensitive stocks into sectors like healthcare and consumer staples—considered defensive because of their steady cash-flow even in hard times and their commitment to paying a dividend.

Yet this defensive shift is but a small part of the story. What’s really driving the trend to dividends is the low yield environment that has retirees, especially, so desperate to secure an income stream that they have begun moving up the risk ladder. The 10-year Treasury bond just hit a record low yield of 1.4%. The average savings account now pays .19% and the average money market rate is just .22%. Those who invest for income have been living a nightmare, and many simply can’t tolerate it anymore.

Source: Time

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