Are Dividend Stocks Headed for a Bubble?

"High-yield dividend stocks may have entered a bubble, and clients and advisors should be aware." That was the message Shane Bigelow, a director and principal at Bernstein Global Wealth Management, a subsidiary of AllianceBernstein, touted to a room of NYU journalists Monday in the firm’s headquarters in New York. “Investors are attracted to high dividend stocks because of the income they are able to generate in their portfolios,” he said. “But because they are so attractive, especially in this low-yield environment, many of these stocks may be overpriced and as a result may underperform the market over time.”

Bigelow suggested investors and advisors invest in value stocks, stocks that are cheap in terms of their price-to-book ratio, to take advantage of dampened market sentiment, largely created by the fiscal cliff. “At the end of the dot-com bubble, we might not have picked all the right stocks,” he said. “But we were in stocks, and that already gave us a directional advantage, which is to some extent why we are where we are today.”

Source: Financial-Planning.com

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