High-Dividend Stocks Are Getting Pricey

After a long run-up, stocks that pay rich dividends have become expensive. The price-earnings ratio, a measure used by investors to value stocks, has surged for utilities and consumer staples companies. Investors were paying more than 19 times next year's earnings over the past twelve months for utilities stocks at the end of April, the highest ratio in at least 10 years, according to FactSet data. The ratio for consumer staples companies, such as Proctor & Gamble and Wal-Mart Stores, rose as high as 18. Those ratios compare with an average price-earnings ratio for S&P 500 companies of 15.7, which is slightly above the 10-year average for the index of 15.1.

While those valuations have fallen back slightly over the past month, they're still higher than for companies that will benefit if the economy picks up. Investors are currently paying just 14.2 times earnings to buy financial stocks and 14.7 times earnings for technology stocks. "The savvy investors that are doing this looked at valuations," says Ron Florance, managing director of investment strategy at Wells Fargo Private Bank. "How much am I paying for economic opportunity?"

Source: Rome News-Tribune

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