No Bubble In Dividend Stocks

No, Virginia. There is no bubble in dividend-paying stocks. This is not to say that defensive sectors of the market are not overpriced compared to more cyclical sectors, or that some investors aren't chasing yields where they can find them in the effort to do better than the paltry rate on bonds. Dividend-paying stocks have certainly outperformed their non-dividend-paying brethren in 2012. Some dividend-focused indexes —such as the S&P Dividend Aristocrats — are near all-time highs even as the rest of the market sells off.

But suggesting that there is a "bubble" in dividend investing — as you often hear today — implies that shares are drastically overpriced or that investors have wild, unrealistic expectations of future profit. That's not true. Let's start with that most iconic of American companies, Coca-Cola KO +1.39% Coke is a special case. It is both a high current dividend-paying stock and one with a history of rising dividends. VIG, which requires its stock holdings to have at least 10 years of consecutive dividend increases, is my favorite ETF for my Strategic Growth Allocation and my Tactical ETF investment models.

Source: MarketWatch

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