Income-starved investors to pile into higher-yielding options, like municipal bonds, utility stocks, corporate bonds and dividend-growth stocks. These are all good choices, of course. But here’s where the death spiral comes in: the rush into these investments has dragged down their dividend yields (because you calculate yield by dividing the annual dividend by the current share price), sending investors into even riskier areas of the market. The pain is obvious in dividend-growth stocks. Yields have plunged to less than 2% on many of the most popular ones, while their price-to-earnings (P/E) ratios have soared. That’s because these companies’ stock prices are racing ahead of their earnings, which have been hobbled by the slow global economy.
As those stock prices continue to race ahead, the risk gets higher—and the size of a potential drop gets bigger when they eventually correct. The trigger could be a surprise dividend cut, or even slowing payout growth. In fact, the latter is already happening. According to S&P Dow Jones Indices, US companies collectively increased their dividends by $6.0 billion in the third quarter. Sounds great, right? Too bad that number has plunged from the $7.3 billion in hikes announced in the second quarter—not to mention the $10.0 billion of increases rolled out in the third quarter of 2015. Here are four dividend growers I see as particularly risky now: Bank of America Corp (BAC), Citigroup Inc (C), Visa Inc (V) and PetroChina Company Limited (ADR) (PTR).
Source: InvestorPlace
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