Chasing Dividend Yield Into a Value Trap

In their ongoing pursuit of dividends, investors should be careful not to indiscriminately buy with only dividends in mind, according to strategists at Mellon Capital in this week’s Barron’s. “Building a portfolio of dividend stocks needs to be carried out with precision, research insights, and a meticulous focus on underlying company fundamentals,” the article says. Dividends, they write, are an important metric to consider, but if over the past ten years an investor bought only the 20% of S&P 500 companies with the highest dividend yields, “that investor would have underperformed the index.” Dividend yields, the article points out, rise […]

Best Performing Dividend Model Over 25 Years Shows Market Possibly Moderately Undervalued

In the continued debate around the valuation of equities, one dividend model, as developed by  Investment Quality Trends, indicates that stocks are still moderately undervalued, writes Mark Hulbert for Barrons. Investment Quality Trends dividend strategy looks for companies that are likely to be able to sustain their dividend, as a result of their strong financial charateristics, and secondly, the model compares a stock’s yield to its historical yield (not the overall market). “When a stock’s yield approaches the high end of its range, for example, a stock is considered undervalued—and overvalued when at the low end of the range,” explains […]

Stodgy Dividend Payers On Top So Far in 2016

The Wall Street Journal reports on investors’ recent moves toward high-dividend stocks. Stocks in the S&P High Yield Dividend Aristocrats Index (which have increased their dividends every year for at least 20 years) are up 1.9% this year, while the S&P is down 4.3%. The return on the Dow Jones U.S. Dividend 100 Index (which consists of consistently high paying stocks) is down 0.8%. One reason for the interest in dividend payers is the perception that further Fed rate hikes are increasingly unlikely. Years of low rates make bonds less attractive. As James Paulsen, CIO at Wells Capital Management, puts […]

Dividend Paying Stocks Could be Riskier Than You Think

An article in Barron’s suggests that “dividend-paying stocks might not be as safe as they look.” Many “companies have been raising their dividends while their earnings growth has slowed or even evaporated altogether.” This is important to the overall market: in 2015 alone, the S&P 500 fell 0.7% on a price basis but rose 1.4% when dividends are included. Since 1969, the same market’s return is four times higher when dividends are included than solely on price appreciation. Currently, S&P 500 companies are paying out 41% of earnings in dividends, which Convergex strategist Nicholas Colas describes as “the high end […]

Dividend-paying Stocks Slipping Since Financial Crsis

  From 1928 to 2014, dividend-paying stocks outperformed non-dividend-paying stocks by nearly 2%, but that edge has slipped since 2008. John Buckingham, CIO of Al Frank Asset Management, notes that dividend-paying stocks tend to follow the fortunes of value stocks. Growth companies tend to invest more of their cash flow into their businesses, whereas value companies are often more mature and thus able to pay dividends. While dividend-paying equities are often viewed as bond substitutes and have historically been significantly less volatile, Buckingham says “dividend payers have lagged” recently, “despite the perception that what the Fed has done has inspired […]