Time to Ditch Dividend Stocks?

Dividend-paying stocks have been a go-to for income investors frustrated with today's paltry bond yields. In fact, mutual funds featuring dividend stocks have been consistently pulling in new cash, in contrast to the investor exodus from other stock-fund categories. Investors have poured $16 billion into U.S. dividend equity mutual funds since the beginning of the year and have withdrawn $25 billion from non-dividend funds, according to EPFR Global.

But investors often forget the most fundamental of investing tenets: Too much of a good thing is not always so good. Turning to dividend stocks, especially at this stage, may be an overvaluation trap. "The search for yield in equities has become so pervasive that even superlatives like 'dividend bubble' are being thrown around, warning investors that dividend stocks are insanely overvalued," writes Brenton Flynn on investing newsletter site Motley Fool.

Source: U.S. News & World Report

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