Stocks to Own During a Dividend Bubble

It may sound blasphemous, after a few years of roller-coaster stock markets and paltry bond yields, but investors seeking the best returns this year could do better avoiding the biggest dividend payers. They may consider steadily rising stocks with only OK dividends. Case in point, the two highest dividend-paying sectors of the S&P 500 are the only decliners among the index's 10 groups this year. With the benchmark up 8.6% on the year, utilities stocks, which yield an average of 4.2%, have lost an average 2.8%. Telecommunications shares, which yield 5.9%, have fallen 0.4%.

Morningstar Dividend Investor editor Josh Peters said in an interview on the firm's Web site that "dividend-paying stocks, high-payout stocks, and high-yield stocks had good absolute returns and very good relative returns last year, but they didn't move into what we think of as overvalued territory as a whole." He calls the sector "fairly valued" at this point and so not representative of what some would call a "bubble" caused by investors chasing yields and forgetting about fundamental valuations.

Source: The Street

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