Why Dividend Stocks Have Become Dangerous

Over the past five years the stocks in the SPDR S&P Dividend ETF (SDY) have posted average earnings growth of nearly 7%. Meanwhile, the stocks in the SPDR S&P 500 ETF (SPY) had annualized earnings growth of 8.7%. Yet right now you’re paying a higher price for the lower growth rate: The SPDR Dividend ETF’s trailing price earnings multiple of 18.9 is significantly higher than the 17.4 for the SPDR S&P 500 ETF.

And while it makes perfect sense to pay up for a solid blue chip dividend payer, right now the price seems especially high for companies such as Coca-Cola (KO), Colgate-Palmolive (CL), Procter & Gamble (PG) and Walgreens (WAG). That compares to the market trading at about 16.5x and defensive consumer stocks at around 19x. Dividend-payers, says the conventional wisdom, will command a higher valuation as Baby Boomers ease into retirement. But even dividend stocks, no matter how solid, can be too expensive. - See more at: http://ycharts.com/analysis/story/why_dividend_stocks_have_become_dangerous#sthash.lYgOiqzw.dpuf

Source: yCharts

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