Are dividend stocks overplayed?

secretwealth · Post by **secretwealth** » Fri Jul 13, 2012 5:48 pm

I read a piece on SeekingAlpha arguing that there is too much attention on dividend stocks and it's causing too much demand for the asset class, but they may find their dividends unsustainable. I immediately disregarded the idea, but considering the low growth world we live in, I wonder if corporate profits are going to start shrinking, which would hurt large-cap dividends in the medium to long term. Any thoughts on this?

George the original one · Fri Jul 13, 2012 7:43 pm

Overall, I'd have to say no, the universe of dividend stocks are not overplayed as my regular portfolio (non-leveraged) is yielding more than 6%, which is a decent premium over 30-yr treasury bonds.
If you're looking at only large-cap dividend companies, then my answer might be "maybe". However, one can usually still find bargains as new companies replace old companies, as mergers and spinoffs occur.
For instance, one should probably avoid Pitney-Bowes as its a dying industry, just as investors reduced Kodak from its former glory. But Microsoft and Intel can still continue to grow, whether its through acquisition or creativity.

44deagle · Post by **44deagle** » Fri Jul 13, 2012 8:55 pm

I have been in large cap dividend stocks for the last 3 years. Recently sold them and went into xle. So imo, they are not that great of a deal anymore.

George the original one · Fri Jul 13, 2012 9:07 pm

Another reason to say "no" is that the famous Dow index are all dividend paying stocks. Do you think the Dow is THAT overpriced?

epoch707 · Post by **epoch707** » Fri Jul 13, 2012 10:52 pm

No I don't think dividend stocks are overplayed. Companies that are generating excess earnings reward their investors by buying back stocks and giving out dividends. Only the best and healthiest companies can consistently do this.
I see great companies giving consistent dividends. The trick is to buy them when they are cheap. Like on march of 2009, that was pretty much a once in a lifetime chance to buy awesome companies at cheap cheap prices

Post by **jacob** » Sat Jul 14, 2012 5:22 pm

I'm not able to quantify overplayed beyond the observation that dividend stocks are getting more popular and more expensive relative to their yield. This is probably a combination of yield-search and flight to safety (with blue chips just happen to having a yield).
Whether it's overplayed, well, there's certainly some positive alpha in there for those who saw this and got in early (pats self on back) and also some frustration that the risk/reward profile of the strategy is decreasing. The danger to avoid is to start exchanging them for lower quality issues with higher yields (value traps). I try to remind myself that if I have to get out, I should get out for cash in order to sit on it, not for some high-risk yielder.

Vangogh · Post by **Vangogh** » Sat Jul 14, 2012 6:39 pm

I think that as long as you stick to your guideline investment criteria, and keep with companies that are fundamentally sound you'll do alright in the long run. Of course I think that though, I am about to start investing!

OurLifeInc. · Post by **OurLifeInc.** » Sun Jul 15, 2012 3:36 pm

It seems to be getting more and more difficult to put new money to work, so I find myself accumulating a cash position...waiting for some things I have my eye on to come down. I was just looking at a few like KO, PEP, SO...all have PEs over or approaching 20 and the yield for KO and PEP isn't that great at under or near 3%. I did buy WAG the other day...but Jacob is right...the hardest part is just sitting on cash and not making the mistake of chasing yield elsewhere.