What's Driving All This Dividend Lust?

In part, this rush into dividend land can be explained by macro-economics. In light of the persistent Euro crisis and doubts over the China growth story, the fear of a global slowdown is driving investor asset allocation out of economical sensitive sectors like technology into sectors considered more defensive like healthcare and consumer staples, which also tend to pay dividends because of their stability. However, clearly, the other major factor is the weight of retail money moving into the space. This is a function of the desperate hunt for income in a yield starved, low-interest world. In the US, the 10-year Treasury bond is near to record lows, and the average savings account now pays almost nothing. Those who invest for income are now moving up the risk ladder as they are so desperate to secure a decent income stream.

Dividend Growth Investing involves buying stocks that are committed to growing their dividends over time – and have a track record for doing just that. Rather than selecting shares with spectacularly high yields (as with the Dividend Dogs), the strategy takes a longer term view and incorporates the advantages of compounding through reinvesting dividends to meet its objectives. See here for a sample DGI-esque stock screen. Unless long term interest rates shoot up, it seems likely that the current dividend lust will have a good while longer to run but just remember, when your hair-dresser asks you about yield plays or Dividend Champions, run for the hills!

Source: Stockopedia

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