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Are Dividend Stocks Overpriced?

Millions of investors have turned to dividend stocks to get their attractive combination of current income and future growth. But with their immense popularity, many dividend stocks have seen their prices rise dramatically, raising concerns that they might be overpriced.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, takes a closer look at the question of whether dividend stocks are overpriced. Dan begins by noting that two popular dividend ETFs, Vanguard Dividend Appreciation (NYSEMKT: VIG  ) and Vanguard High Dividend Yield (NYSEMKT: VYM  ) , have overall earnings multiples that are actually less than those of the S&P 500. Yet Dan goes on to find that in certainly high popular sectors, dividend stocks look more expensive. For instance, among consumer stocks, Dan finds that Procter & Gamble (NYSE: PG  ) , Johnson & Johnson (NYSE: JNJ  ) , and Coca-Cola (NYSE: KO  ) have earnings multiples above 20, even though all three companies have challenges facing them that could limit their growth in the future. Dan concludes that while dividend stocks aren't universally overpriced, you have to be careful to make sure individual stocks you choose have reasonable valuations.

The plain truth about dividend stocks
Why should you care about whether dividend stocks are overpriced? It's simple: Dividend stocks can make you rich. They have a reputation for safety, and over the long term, the compounding effect of growing dividends adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

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  • Report this Comment On November 09, 2013, at 12:16 AM, RyanPeckyno wrote:

    Dividend paying companies should have multiples less than other stocks because growth expectations are, generally speaking, much lower. Many of the high dividend paying companies are over-priced. The Defense Sector, for instance, is one of the most over-priced sectors given its future outlook. There are, however, some good values such as BP and foreign telecoms.

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