US Dividend Stocks Overvalued

Pimco’s Raji Manasseh has warned against investors piling into the US in search of high-yielding equities, as many companies with high payouts have been overbought in the recent rally. Mr Manasseh, senior vice president for dividend strategies at US investment giant Pimco, said the company had recently sold down much of its exposure to sectors such as telecoms, utilities and real estate investment trusts (reits) as they had become overvalued.

“Financial repression has driven a thirst for yield,” Mr Manasseh said. “Clients have funnelled into a narrow range of dividend stocks and raised values to historic highs. “Since 1995 US telecoms have traded in line with the wider market, but now they are at a 40 per cent premium. You have to ask if these companies are worth 19-20 times next year’s earnings.” He added that utilities stocks had seen similar movements – compared with a historic trading level of roughly 20 per cent lower than the wider market, the sector is now also at a significant premium.

Source: FT Adviser

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