Dividend Stocks Will Surge If Growth Continues

The argument that defensive dividend-paying stocks are now overvalued is extremely short-sighted, according to Ben Lofthouse and Andrew Jones, who say those prices could continue to rise if there is a sustained period of economic growth. The price of dividend-paying stocks has spiked as investors look for bond proxies, given the low-yielding fixed income market. As a result, a number of fund managers have claimed that defensive income-producing equities are now expensive compared with historic levels.

However Lofthouse and Jones, who manage the Henderson Global Equity Income fund, say that these expensive stocks could well increase further in value if economic growth sets in, as equity markets are boosted by inflows. They admit that the relative valuation of defensives compared with cyclical stocks would almost certainly drop, but that does not mean the prices of defensive equities would necessarily fall in real terms. "We haven’t seen a period of decent economic growth for a while," Lofthouse said.

Source: TrustNet

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