"Safe" Dividend Stocks Aren't As Safe As You Think

They say there is safety in numbers. That may be true heading into battle, but it's not necessarily true in the investment world. Whether it's tulips, dot-comstocks or houses, popularity can push the short-term price of assets past their true long-term value. But while bubbles can build over time, price corrections can be swift. Lots of investors get trampled in the stampede when the herd decides a popular asset is no longer worth the money. The latest example of a "crowded" investment comes from one a sector you might least expect. We're not in "bubble" territory yet, but buying these stocks now could be risky.

In December 2008, the U.S. Federal Reserve lowered the Federal funds rate -- the overnight lending rate between banks -- to almost zero percent. The hope was that lower interest rates on everything from mortgages to business loans would help stimulate economic growth. But the Fed 's policy also resulted in historically-low savings rates. This led to retirees and conservative income investors to slowly move their money out of savings accounts and U.S.Treasuries and into defensive dividend stocks in search for better yields. Now, the valuations of defensive dividing-paying stocks have become downright lofty. The irony, of course, is that the overcrowding in these "safe" stocks is making them less safe.

Source: NASDAQ

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