Are Dividend Stocks Overvalued?

In the past few years, dividend stocks have exploded in popularity because, in some cases, you could actually get a higher yielding dividend than the yield on a US Treasury bond. Unfortunately, some analysts are saying that dividend stocks are now overheating and have gone too far. Dividends are most popular when there is a good deal of volatility and uncertainty in the markets. In theory, dividend stocks fall less than the rest of the pack when uncertainty is high.

Sam Burns of Brown Brothers Harriman thinks that the dividend trade is overcrowded after years of popularity. In two different charts, Burns points out that in the high dividend stocks vs low dividend stocks that higher yielding stocks are actually now more expensive on historical levels than low yielding stocks. If the government does not extend this break, I think we are going to see a lot of people head for the exits on dividends because you will be losing so much of the dividend that it might be better to look for other opportunities out there. Until then, I will continue to invest in dividends because it provides safety and income. In uncertain times safety and income are two of the best things you can have.

Source: Value Walk

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