Ignore the Dividend Bubble Babble

As every investor knows, dividend stocks have been hot for years. Since the market bottomed in March 2009, the Dow Jones Select Dividend Index is up 226%, versus 171% for the S&P 500. And lately, the idea of a market bubble has been gaining momentum. Alex demolished the notion of a broad-market bubble on Friday. I agree completely. Yet questions persist about the prospect of a dividend stock bubble. Perhaps because dividends have outperformed the broader market, some worry that they’re even frothier. Last week, CNBC ran a report about the topic. And we’ve started getting questions in our Investment U Mailbag from concerned members.

There’s no doubt that dividend stocks, as a group, have had a great ride lately. And it’s not surprising, considering the other options for income investors in this environment. You get just about the same amount of interest from the bank as you do putting your money under your mattress. And Treasury bond yields are so low, it’s ridiculous to even think about locking up your money for 10 years for 2.7% per year. But the idea of a dividend bubble is silly. Dividend stocks may be popular. They may even be hot. But to suggest that they are so frothy that they are going to crash is not logical. That doesn’t mean they can’t go down in a bear market. They certainly can.

Source: Investment U

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