Dividend stocks are buoyant

You’ve heard about housing bubbles, commodity bubbles and the Internet bubble. Are we in the midst of a dividend bubble? After the big runup in dividend stocks over the past couple of years, a few people have started to throw around the “b” word. They argue that with bond yields at historic lows, income-starved investors have rushed recklessly into dividend stocks, pushing prices to dangerously high levels.

Granted, dividend yields used to be higher. Until the 1970s, S&P 500 companies paid out about 50 per cent of their profits as dividends, but the payout ratio has fallen to about 30 per cent. Given the more than $1-trillion (U.S.) of cash sitting on corporate balance sheets, however, the payout ratio will likely rise as companies return more cash to income-hungry shareholders. That’s one more reason that talk of a dividend bubble is just hot air.

Source: Globe and Mail

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