Dividend stocks have been thriving in the low interest rate environment. Dividend-paying stocks, which we define as stocks with higher dividend yields than the broad equity market, have garnered support as investors increasingly use stock dividends as a substitute for fixed income in the low interest rate environment. But has the market’s thirst for yield gone too far? Are these stocks in a bubble? This week we take a look at high-dividend-paying stocks to assess whether these stocks are in a bubble and if investors should actually view high dividend yields as a warning sign.
There are a number of reasons for the increased popularity of high-dividend paying stocks. First, bond yields are near record lows due to central bank stimulus worldwide and low inflation, leading investors to increasingly favor higher yields offered by equities over bonds—despite the higher volatility that comes with that swap. In fact, the percentage of S&P 500 stocks with dividend yields higher than the 10-year Treasury yield is over 60%, which is the highest it’s been since at least 1970. Read Entire Article…