There has been a lot of buzz around dividends lately, everybody is talking about yield, income funds, dividend ETFs have been popping up CDZ, CYH, HAL, HAZ, XTR, XDV. Every body is into dividends. People are more concerned about % yield than P/E ratios.I am a big fan of REITs and I used to give them an over weight allocation in my portfolios even up to 50% These days are over. I cannot justify holding REITs anymore because the valuation is so high. Everything from REITs, Utilities, Telecoms, are trading at rich valuations. Everyone and his grandmother is chasing yield.
Today the only REIT I hold is DI.UN just because I think nobody has heard of it yet, that's why the valuation is still sane. Today my REIT allocation is at around 5% of my portfolios. I switched some of my REIT holdings to Convertible Debentures because the risk reward of REITs compared with their own debentures is becoming disconnected and your way better off holding the Conv Debt.
History has shown again and again that extreme bullishness is a contrary indicator.
Joseph P. Kennedy, Sr., father of President Kennedy, famously said that he knew it was time to get out of the stock market before the 1929 crash when he was getting stock tips from the shoeshine boy.
Am I saying we are in a dividend bubble? probably not, these companies are usually well run blue chips. They are not tulips or cash burning .coms with no business plan. However I do believe dividend stocks are set to under perform simply because the valuation is so high today.
I think that it would be a bubble if they were selling at 30 times earnings, but many are selling for less than 15 times earnings.
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I would not say that we are in a dividend bubble. For sure, stocks are not cheap with P/E’s over 20 and yields below 2% but its reasonable if you look at the yields of the 10y treasuries.
ReplyDeleteI'm not sure I understand what a "dividend bubble" is. Most quality companies pay some dividend, although many are not high yield. I'm not denying the existance of asset bubbles, but it seems to me that a "dividend bubble" is just another phrase for "stock market bubble".
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