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Dividend Bubble?

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Have you ever been excited about Consolidated Edison (NYSE: ED  ) ?

Probably not. But its shares returned 50% in the last two years, double the rate of the broader market --not bad for a regulated utility. ConEd's dividend yield, an inverse reading of its valuation, is now the lowest since the 1990s.

Altria (NYSE: MO  ) has suffered a string of dismal earnings reports as smoking rates decline. Just don't tell the market: Its shares are also up nearly 50% in the last two years and now trade at the highest valuation since 1998.

What's unique about Edison and Altria? They pay enormous dividends. And starved of yield with interest rates near 0%, investors are tripping over themselves to get dividends these days. S&P 500 companies with the highest dividend payouts currently have the highest P/E ratios. In 2007, it was the other way around: Stocks that didn't pay dividends had far higher valuations.

But don't get too comfortable with the dominance of dividends. There's a bad precedent here. Last decade, the Federal Reserve kept interest rates far too low for far too long. Starved of income from Treasuries, investors were tempted to search for yield wherever they could find it, which back then meant subprime mortgage bonds. You know how that went.

Blue-chip dividend stocks are not subprime bonds. But there's an argument to make that, just as investors ran blindly into subprime bonds five years ago in search of yield, they're running blindly, carelessly into dividend stocks today.

The tables may already be turning. So far this year, S&P 500 stocks that don't pay dividends are up 8.3%, while those that do are up just 1.3%. That makes sense: As it becomes clearer that the economy is recovering, investors are more keen to take risks rather than hiding in the warm embrace of dividend stocks. Last year, it was flipped: Dividend stocks handily outperformed the nonpayers as it looked like a new recession was imminent.

It all comes down to valuations. And the more I look, the more it becomes apparent that stocks known for their dividends trade at unfortunate valuations that could leave investors disappointed. I already mentioned Edison and Altria. Most utility companies have also seen phenomenal returns and now trade at historically high valuations. McDonald's (NYSE: MCD  ) , a favorite of dividend investors, now trades at a brisk 19 times earnings after doubling in price in two and half years. Caterpillar (NYSE: CAT  ) , another dividend dynamo, has seen its dividend approach the lowest yield in a decade after shares doubled since 2010.

These are high-quality companies that deserve premium multiples. And there are exceptions to the rule. But for the most part, dividend-paying stocks are some of the most expensive and sought-after stocks in the market. Going forward, investors might get what they pay for (don't they always?).

There may be, in other words, a dividend bubble.

I'm aware of how bad most people, including (sometimes especially) myself, are at predicting market trends. I may be wrong here, and there are two reasons why.

First, the Federal Reserve just signaled plans to keep short-term interest rates near 0% until 2014. That could keep demand for dividend-paying stocks high for years, as they provide some of the only yield left in the entire investment universe.

Second, the dividend payout ratio on S&P stocks is near an all-time low. S&P 500 companies could more than double their dividends without breaking any historical precedent. Howard Silverblatt, S&P's chief number cruncher, expects dividends to rise 11% this year. "The dividend story is good and should continue to be good," he said recently. He may very well be right.

But dividends are sensationally popular right now, and rarely does it pay to follow the crowd. Buying high-dividend stocks three years ago was clearly a wise bet. Whether it will be wise over the coming three years is another story.

Don't buy it? Still bullish? If you're still in the market for some really high-quality dividend stocks we think will perform well over the long run, check out the Motley Fool's free report, "Secure Your Future With 11 Rock-Solid Dividend Stocks." It's free. Just click here.

Fool contributor Morgan Housel owns shares of Consolidated Edison and Altria. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Altria Group. Motley Fool newsletter services have recommended buying shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (49) | Recommend This Article (146)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 06, 2012, at 5:09 PM, starz188 wrote:

    To date, the best stock I've ever purchased with real money remains EPD. They have a healthy dividend, and have raised it year over year.

    I think any risk with dividend-paying stocks comes from the company itself, or the industry....not the fact that the company pays a dividend.

  • Report this Comment On February 06, 2012, at 5:10 PM, DividendsBoom wrote:

    It's not just dividends that we buy these companies for. It's real businesses with real earnings and a real path to returning value to shareholders. PM, MCD, NGG, got to love em

  • Report this Comment On February 06, 2012, at 5:12 PM, DividendsBoom wrote:

    Not to say those who blindly chase yield won't experience some underperformance

  • Report this Comment On February 06, 2012, at 5:22 PM, Regarded49 wrote:

    will DG investors underperform with T? GE? JNJ? XOM? NLY? EXC?

    Yes, they are no rocket to the moons, however by reinvesting the dividends over time, this is the ONLY way that the potential of beating inflation for ones golden years......starting early enough could even give a cost basis of less than zero on many stocks i mentioned.....for the already retired, the income is wonderful.....the only bubble i see right now....facebook.

  • Report this Comment On February 06, 2012, at 5:31 PM, cmfhousel wrote:

    <<Let a dividend investor's bubble pop and you'll make his day.So how can there be a bubble in dividend stocks?>>

    Interesting and fair point. Well put!

  • Report this Comment On February 06, 2012, at 5:38 PM, fdfpro wrote:

    A company having a high dividend is suggestive, but not necessarily indicative of undervaluation (otherwise the yield would steadily decrease as investors piled in).

    Due diligence is key.

  • Report this Comment On February 06, 2012, at 5:51 PM, Texish wrote:

    To the people who willingly hand over their money on the "promise" of an upside by management who looks after their own interests before those of the shareholders, or anyone else, I say fine, go ahead. For myself, I buy dividend yielding stocks because I believe companies should pay me a return on my investment. Its about respect.

  • Report this Comment On February 06, 2012, at 6:03 PM, TheDumbMoney wrote:

    I have been feeling dividend stocks were entering a possible bubble since around 10/2010, when I blogged about it in my ISRG pitch. MO is an excellent example of this problem. I'm worried enough about that one that I have a stop in place, which I never usually do (and which I justify because, for me, PM is the foreover-hold, not MO). PM faces the additional problem that people are using it as a form of currency speculation on an anticipated falling dollar.

    Even if the Fed keeps its ZIRP in place until late 2014 (in that regard, note that it used the word "probably"), this does not necessarily means forward gains can be had now for long-term holders. Even prudent dividend investors may unwittingly be speculating on when ZIRP will end. For me, this has driven my shift out of dividend payers as I search for new long-term purchases, even though I haven't been selling my dividend-payers. Note in this regard MSFT, which is a great dividend stock, has been an exception, because of concerns about its future. In my completely non-expert opinion, the last year or so has been a nice time to be buying quality non-dividend-paying or low-dividend-paying stocks for the long-term. This conclusion is somewhat negated by the fact that we are entering a recovery, and if profit margins don't contract, then the whole market is probably undervalued still.

    But anyone reading this who doesn't know me, keep in mind I have a 48 rating in CAPS.


  • Report this Comment On February 06, 2012, at 6:06 PM, TheDumbMoney wrote:

    "...that IF we are entering..."

    Also note, I think truth is right that if you are a true long-termer, it doesn't matter so much. On the other hand, it's obviously better to employ your new capital when the original yield-on-cost is at its highest.


  • Report this Comment On February 06, 2012, at 6:16 PM, Deibster wrote:

    I don't remember where I read this recommendation, but Navios, NMM, has done great for me. I've only owned it for 7 months & it's up 50%. Despite this higher value, the dividend is still over 10% and the P/E is under 13.

    Another of my choices is Chimera, CIM. Don't go overboard on this one as it's a mortgage backed investment, but the stock price has come down 30%, off its high, recently to reflect that risk. The dividend is over 16%.

    Good investing, deibster

  • Report this Comment On February 06, 2012, at 6:23 PM, portefeuille wrote:

    my fund, which is focused on biopharma stocks, is up around 88% since the December 2011 performance low (not all that long ago, hehe). Certainly not thanks to "high dividend yield stocks" ...

    the fund ->

  • Report this Comment On February 06, 2012, at 6:36 PM, portefeuille wrote:

    well, the preceding drop was not all that fantastic, of course ...

  • Report this Comment On February 06, 2012, at 7:35 PM, DIVBOY wrote:

    Investing in dividend stocks seems like a no brainer to me. When they CD/Treasury rates become competitive with dividend rates it will probably be a good time to take some money out of dividend stocks. Until then . . . why bother.

  • Report this Comment On February 06, 2012, at 8:53 PM, dsalhany73 wrote:

    Isn't it funny how everything nowadays is a "bubble"?

    Pretty much everywhere I turn or what I read, you name it.

    It comes from experience, we've all been burned in the past. But 13 years ago, no one was talking about it really.

    One thing to learn from these experiences is that bubbles truly happen when no one looks for them. Dividend stocks are sort of overvalued, but I am certain they have quite a while to go yet.

  • Report this Comment On February 06, 2012, at 9:30 PM, rd80 wrote:

    Good article. I share concerns over the popularity and valuations of many dividend paying stocks.

    But - I think IF there's a bubble in divvy payers, it's being driven by an even bigger bubble in bonds. With CD, savings and investment grade bond yields in the tank, investors who need income only have a few options - lower quality bonds or high quality dividend growth stocks.

    And, there are still some decent divvy bargains out there. Even stocks like MCD that trade at a premium to the market aren't ridiculously expensive.

    I also believe many are underestimating bond market risks with yields at record lows. If rates creep up even part way toward historical averages, longer term bonds will be hit hard. Combine that with the fact that most bond coupons won't change, but quality stock dividends tend to increase year after year and I think stocks are generally the better option, even considering the different risk profile.

    Disclosure: MCD is my largest individual stock holding and I have no plans to sell any.

  • Report this Comment On February 06, 2012, at 9:40 PM, kyleleeh wrote:

    As an avid dividend investor, and dividend reinvestor, it's the ride up that hurts the most as the cost of reinvesting goes up with higher share prices. The bubble popping brings the sweet relief of cheap cash flow as I get the same dividend at a lower price.

    This dividend stock boom has made me wonder if by reinvesting my dividend i'm acting like an arrogant CEO doing a stock buyback when stock is at it's highest levels.

  • Report this Comment On February 07, 2012, at 12:04 AM, InvestWhatWorks wrote:

    "So far this year, S&P 500 stocks that don't pay dividends are up 8.3%, while those that do are up just 1.3%."

    So far this year? Slightly over one month of data? That's a REALLY short-term view, don't you think?

  • Report this Comment On February 07, 2012, at 2:33 AM, kyleleeh wrote:


    I would not be upset if they stayed flat but I would not mind if the price came down a bit. The winning strategy with dividend stocks is reinvesting the dividend and getting a larger check everytime, this works best when the stock stays at low valuation while the dividend gets increased yearly.

    As Jeremy Siegel has pointed out a big contributing factor to Phillip Morris being the best S&P stock to have owned in the last 50 years is that the dividend grew faster then the stock price did

  • Report this Comment On February 07, 2012, at 2:59 AM, kyleleeh wrote:

    Ok I see what your saying

  • Report this Comment On February 07, 2012, at 7:13 AM, duanelyons2000 wrote:

    Historically, i am a big dividend investor, with McD being one of my larger investments. However, this is a good article that makes me think and is why I subscribe to Stock Advisor - the opportunity to hear from other individual investors

  • Report this Comment On February 07, 2012, at 8:59 AM, TMFBreakerRob wrote:

    Just to add my two cents....

    I retired a bit over a year ago and I've got a mix of companies, some "growth" (AAPL, PCLN, IPGP and others) and some "income" (RIG, NLY, GE, SDRL, ESV...and others being added from time to time).

    My point is that we as investors don't have to choose only one or the other, we can do very well by choosing both!

    And, I have to admit, I am also working to boost the returns by occasionally selling covered calls, often in the last week before expiry when I want to minimize my chances of my shares being called away. It all helps! The key for me is to not get greedy and sell those calls too early. Doing so has sometimes resulted in having those shares called away. For income seekers, this can be a viable "option", worth investigating.

  • Report this Comment On February 07, 2012, at 12:41 PM, usc1801 wrote:

    I prefer dividend stocks for several reasons. 1) they are usually very well, conservatively run companies, 2) you know where the money is going rather than those companies that state they're "reinvesting profits to increase market-share" or some drivel like that, 3) the dividend stocks I invest in are SOLID investments. I look at what do people need in good economies and bad. Finally 4) I'm not convinced the economy will ever fully recover. and my portfolio of 28 stocks averages a 5% yield. You can't underestimate the effect of that yield reinvested each quarter.

  • Report this Comment On February 07, 2012, at 12:45 PM, DJDynamicNC wrote:

    I started investing (and reading the Fool) just after the big 08 crash, because it seemed like a propitious time to get into the market. Everything I've learned since then has only confirmed that feeling. Bring on the lowered prices!

  • Report this Comment On February 07, 2012, at 1:08 PM, dmawhinney wrote:

    Hmmm! Let's see... The price of a dividend stock gets so high we contemplate assigning "bubble mania" to it. So what would the dividend be then?? Would it still be considered a dividend stock?

    I own some of the stocks you mention and consider the dividend payment against my cost basis (like you would compare an interest payment against the face value of a bond). I certainly wouldn't buy these stocks today for their dividend (but maybe for other reasons) and don't consider the stocks you mention as dividend stocks (anymore).

  • Report this Comment On February 07, 2012, at 1:33 PM, BruceHBi wrote:

    I thought the last two points, concerning Fed rates through 2014 and the percentage of the payouts were significant.

    And really, if one shouldn't run with the crowd, isn't running FROM the crowd just as dangerous? Even a blind sow finds an acorn now and then.

  • Report this Comment On February 07, 2012, at 2:31 PM, FutureMonkey wrote:

    Certainly there can be broad sector rotation without necessarily being a "bubble" situation of massive rush for the exits. Potential risk for underperformance and a sudden jag downward if there is a change in tax policy with regard to dividend investment returns.

    Routine sector rotation should not be a problem for somebody following modern portfolio theory and rebalance strategies with a dividend ETF or self-created basket.

    My approach to dividend paying stocks is similar to those of earlier -- reinvest dividends and wake up 25 years later with a pile of shares paying out more in dividends than my original investment. If you buy 100 shares in Chevron now and in 2037 still have only 100 shares, you didn't do it right. I consider trading in and out of dividend payers and market timing to be too risky. These stocks are you ballast to reduce risk through dollar-cost averaging via dividend reinvestment and rebalancing for long run gains in portfolio bottom line.

  • Report this Comment On February 07, 2012, at 3:38 PM, Hawmps wrote:

    "year to date"... anything, is a horrible metric, especially after only a month; but looking at month over month, year over year, or compared to same month last year is meaningful, comparable data. Trailing twelve months is useful data.

    Ok, so dividneds (I don't know about any of you but I always miss type dividneds, type too fast).... my questions are, after looking at the underlying business etc., how much is the cash flow worth to me? how fast can it grow? I am a firm believer in reinvesting the dividneds, but I tend to hoard my cash, buy more on an earnings miss or buy something else that's screaming blue light special. Last month, it was VE and TWGP that were screaming blue light special at me so that's where I put my cash. I use a similar principal in real estate investments... don't spend the rent profit, hoard it until there's enough for down payment on another property (plus operating cash), usually one that is broken and undervalued, fix it and repeat. That process wouldn't work without the rent profit, ie. "dividends". I like it when my investments pay me to buy more investments.

  • Report this Comment On February 07, 2012, at 4:42 PM, TMFDarwood11 wrote:

    Interesting article, and interesting comments. I'm in "phased retirement" and so I've been moving my portfolio from "10 years out" to "in retirement." Actually made a big, preparatory change in 2008.

    I am somewhat concerned by "bond," "dividend" and other bubbles. I'm more concerned about running out of retirement savings in 25 years.

    However, I decided to allocate a portion of my portfolio to dividend stocks back in 2008. I did so but also made adjustments to maintain an overall allocation strategy to avoid becoming too "stock heavy." Not an easy thing to do, buying dividend paying stocks, funds including growth stocks, foreign stocks, emerging markets, bond funds (including emerging and TIPS) and a smattering of commodities and REIT, and keeping what I considered a reasonable allocation.

    I decided I also had to insulate my retirement savings somewhat, so I began building about 7 years of cash outside the market, per se. The idea was to avoid most of the financial pain of a 7 year bear market. Currently, because of the low interest policies, I'm taking my lumps in cash. But the rest of the portfolio is doing fine. I can adjust cash which is out there 3-7 years to get a slightly better yield, and I might.

    Even with low yield on cash, I've been able to get an overall yield of just above 2%. So I can't complain about dividends. If it weren't for them my yields would be far less, and I would have to be really concerned about the destruction of my portfolio by inflation. That could occur.

    There is no easy road, and no free ride.

  • Report this Comment On February 10, 2012, at 11:54 AM, 88melter wrote:

    Be fully invested in dividend stocks, and your "cash" will do double-duty for you. As one responder put it, you win if these stocks rise, and you win if they don't rise, or if they fall. Remember that a stock's price is demand-driven, not fundamental-driven. A stocks' VALUE is fundamental, but not necessarily reflected in its price.

    I also find it very interesting that even our trusted allies at the Fool are concerned about this"impending bubble". I would venture to say that most of the professional investing community cares not a fig for any bubble about to burst, since brokers of every stripe make money buying the bubble-suds for their clients on the way up, and selling the bubbles when they have burst. Ought to be the other way round, of course.

    Lastly, a given divi-stock's yield needs to be considered in relation to the price one has paid for it, and not its current price/yield ratio. I wish that my Scottrade analysis page would show the yields this way. When share prices rise, your effective yield does NOT change. Nor does it when they fall.

    It is like holding a bond til maturity. You get to decide when your divi-stock-bond is mature, that is, when it valuation has risen enough to end its appeal, and other solid dividend plays are more appealingly priced for new investment.


  • Report this Comment On February 10, 2012, at 12:11 PM, cmfhousel wrote:

    <<I also find it very interesting that even our trusted allies at the Fool are concerned about this"impending bubble". I would venture to say that most of the professional investing community cares not a fig for any bubble about to burst, since brokers of every stripe make money buying the bubble-suds for their clients on the way up, and selling the bubbles when they have burst.>>

    Mind you, Motley Fool is not a stock brokerage.

  • Report this Comment On February 10, 2012, at 12:23 PM, Riocafe wrote:

    I keep 5 years of cash on hand, the rest is in stable dividend payers. Sure I will keep an eye on them, but I dont feel a need to "balance" out the portfolio with bonds. I'm retired and my portfolio is almost on auto pilot.

  • Report this Comment On February 10, 2012, at 1:07 PM, tylee100 wrote:

    Nice article. I think you are right, but about two years early. Often trends such as this run way longer than rational, logical people expect. There will be a comeupance for these stocks but we have not yet seen the hysteria that accompanies the final blowout. I don't expect that for a few years.

  • Report this Comment On February 10, 2012, at 2:06 PM, DAP77 wrote:

    Forgive me if addressed above in the comments, but it seems to me that dividend-paying stocks, esp utilities, energy, and mining, are asset-heavy. They serve a second purpose as a hedge against inflation which a folks fear from the QE's. I'd like to know if this consideration probably mitigates against the bubble argument.

  • Report this Comment On February 10, 2012, at 2:21 PM, SkepticI wrote:

    "often trends such as this run way longer than rational, logical people expect" Amen. The quality of "inertia" in markets and our economic system is unappreciated. Just ask Enron investors.

    Furthermore, its axiomatic that bubbles created largely by the irrational and less than logical will persist on their own rules that are neither rational nor logical.

    Having watched and benefited from bond yields in the 15% range in the early 80's, the stock bubble recently, and the real estate bubble in 2005, I find that looking stupid and kicking myself for jumping off too early while painful is less so than a late exit, which I experienced in 2008 and regretted. Still, it makes perfect sense for any dividend bubble to continue for a bit as the bond market is all downside as best I can analyze it. When bond yields are in low single digits nominal and NEGATIVE REAL, even a 5% drop in price is disaster, eats up your return for several years.

    That is ok when more interest rate reductions can increase the price, but with rates so low, it becomes next to impossible for reduction in rates to improve the price...will bondholders start paying out of pocket for the privileged of only losing a little money? Not very likely.

    And if you believe 100% of bondholders get back their principal if they just hold on, you are not watching the news. Where to go? Only one place my friends, dividend stocks with sound business and REAL EARNINGS backing their payouts. Note, not all dividends have this quality...especially many utilities in bad regulatory environments...just think back to the 80s.

    Just don't be the last one to leave town if you need the money -being forced to sell a dividend stock that has declined 50% because it got bid up to unreasonable levels and the 4.2% dividend is now less than 2% can be painful. (experience speaking here) Sitting on 7 years of cash and buying more when it drops? -heavenly (chortle)

  • Report this Comment On February 10, 2012, at 3:30 PM, IBJAMMIN wrote:

    As more and more Baby Boomers retire over the next 10 years, they will pull more and more money out of growth stocks, etc. As they look at bond yields they will say to themselves, "Screw these crummy yields from bonds when I can get 3% to 18% on dividend paying stocks! Stocks give some inflation protection too". I suggest people look at BDC's as well as REIT's for some really fat dividend returns. The BDC's provide some growth too. Over half of my Roth IRA is getting more than 10% dividend return. Btw, I'm recently retired, but still reinvesting returns in my Roth for future needs.

    Many of the really big payers drop on their ex-dividend date and for a few more days afterward. Often by more than the percentage of the dividend for that quarter. That can make a nice buying point. If you are buying enough shares, you can make nice profits riding the run up to the ex-dividend date, but selling before the date to take profits instead of the dividend.

  • Report this Comment On February 10, 2012, at 3:31 PM, rkssail wrote:

    A bursting bubble shouldn't be much of an issue with dividend stocks. They are more self correcting than non-divies for the simple fact that as the price goes up the falling yield makes them less attractive and the bubble should slowly deflates until an increase in dividends makes them attractive again.

  • Report this Comment On February 10, 2012, at 6:16 PM, Jazz417 wrote:

    We foolishly buy wide moat companies

    Many of these companies pay dividends

    Dividend stocks historically perform better

    Good companies consistently pay dividends

    Dividend stocks are performing particularly well

    We are long term investors

    What's the problem?

  • Report this Comment On February 10, 2012, at 6:27 PM, volcan357 wrote:

    This article is right. People buy utility stocks for example because of the yield they receive in the form of dividends. So when interest rates go down the stocks go up and when interest rates go up the stocks go down. Since interest rates are at historical lows the only direction they have to go is back up which means that utility stocks would go down. Since the present monetary policy is inflationary at some point the Fed will be forced to raise interest rates. When that happens down will go the stocks that people are primarily buying for their yield. As a matter of fact when interest rates go up the stock market in general goes down. Or another way to look at it is to say that the whole market is being artificially propped up with low interest rates. When inflation starts becoming a serious problem then the Fed will be forced to raise rates. Personally I am opposed to the idea of the Fed using interest rates to try and manipulate the economy. I think interest rates should stay at some reasonable level or be determined by the markets but not be manipulated.

  • Report this Comment On February 10, 2012, at 6:34 PM, volcan357 wrote:

    A good example of my previous post is Southern Company (SO). The stock is presently at an all time high solely because of near zero interest rates. It is a good company but watch what happens to it when interest rates go back up.

  • Report this Comment On February 11, 2012, at 12:35 AM, MaxTheTerrible wrote:

    Interesting article, Morgan. As you rightly stated, "It all comes down to valuations".

    At the end of the day, I don't care if there is a bubble or not as long as I feel that I paid a fair price for my dividend-paying stocks. For example, back in Aug-Sept. last year I made few purchases of dividend paying stocks - INTC, MSFT, WM (all documented in my blog) - and I'm happy to hold them. Would I buy these same companies at today prices? Probably not, but I would love to increase my positions if the "bubble" pops...

  • Report this Comment On February 11, 2012, at 2:02 AM, Libertarian71 wrote:

    Morgan said: "and rarely does it pay to follow the crowd."

    I wonder how Jesse Livermore would have responded to that statement.

  • Report this Comment On February 11, 2012, at 12:37 PM, SkepticI wrote:

    My bet is Jesse would say its ok to be following part of the crowd in, as long as you don't follow the crowd OUT. And the CROWD is the baby boom, so you better beware and be aware of its excesses. The stampede OUT of second homes and "real estate sure thing" is well documented. Lately it was stocks as those of us near retirement realized belatedly the market was over valued and we were over-exposed, and needed to be more in Bonds....hello BOND over value.... this is not so well documented. My favorite statistic which has been proved to be nearly correct is that TEN THOUSAND PEOPLE A DAY are turning 65 for the next 10 years. If that doesn't create bubbles and crowds, I don't know what will. If you are in that crowd you need to pay attention because the system and the market are not prepared to handle it. And the rest of you might have to consider how you will survive the hangover and profit from it, also how to pay for it....get to work, ha

  • Report this Comment On February 11, 2012, at 1:20 PM, UFOFred wrote:

    Speaking of bubbles, there is an interesting comment from a certain Mr. W. Buffett:

    "Bonds promoted as offering risk-free returns are now priced to deliver return-free risk."

    Warren also has some interesting observations about gold.

  • Report this Comment On February 11, 2012, at 1:34 PM, MellowGuy1 wrote:

    Many of the high dividend companies, although highly profitable, just can't grow anymore so they resort to paying high dividends and buying back stock.

    Many high dividend stocks are in a bubble because of the low treasury interest rate.

    Some of the stock buy backs are diluting the value of the stock. MMM is only 50% above its price of 10 years ago.

  • Report this Comment On February 11, 2012, at 4:07 PM, vaderblue wrote:

    Divys. Oh yeah. I love my dividend stocks.

    Combine with non-dividend growth stocks and sit back and smile all the way to the bank.

    My IRA's consists of CXS,NYMT,NLY and Peri.

    along with Cbou, RA (railroad) Seaspan which I just purchased.

    Dividends make it sweeter

  • Report this Comment On February 11, 2012, at 10:02 PM, bobbyk1 wrote:

    I look stocks with rising dividends.Rising dividends usually signal growth.A few of my holdings are WFM,DIS,and JBL.I am enjoying the dividend and a rise in the stock price.Most recent buy was LTD and I will see how that works out.

  • Report this Comment On February 16, 2012, at 12:22 PM, williamjacobs wrote:

    Gone unmentioned are attractive yields in mid and small caps.

    I just bought AIXG and TESS.

    Why because my screens for the first time in four years returned exactly ZERO attractive yields among blue chips.

    I just stared at the screen. I was looking at economic recovery. Whoa. So THAT's what it looks like.

    I'll hit growth stocks next. I'll miss some of the uptick, I know, but I love dividends and there are still a few good ones left. (Not many though! The dividend play has less than a year left.)

  • Report this Comment On February 23, 2012, at 7:17 PM, AgAuMoney wrote:

    Why keep so much (5 years, 7 years, etc) in cash when invested in solid dividend payers?

    Those dividend payers mostly pay quarterly, and a few semi-annually, and a very rare handful pay annually.

    With that in mind, it seems that one year of cash on hand should be plenty and two years extreme.

  • Report this Comment On February 23, 2012, at 7:22 PM, AgAuMoney wrote:

    @skeptic, "being forced to sell a dividend stock that has declined 50% because it got bid up to unreasonable levels and the 4.2% dividend is now less than 2% can be painful. (experience speaking here)"

    If a stock gets bid up, its yield drops but it is a joy to sell (to rebalance the portfolio) and capture some of those cap gains.

    If it declines 50% then the dividend yield doubles (goes from 4% to 8%, not down to 2%).

    Do you mean the dividend got cut? That's the only way I can figure any sense into it. And yeah, that's why to buy solid companies and watch for warning signs, but still don't put all your eggs into one basket (eg not just financials, or utilities, etc).

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