The Bubble You Never Even Thought Was A Bubble: Dividends

campbell-soup-cansHere is a good article about a fund manager avoiding today’s dividend bubble. The riskiest stocks today are “safe stocks”.

Let’s be clear. We are in a dividend bubble. People are buying over-valued companies only because of a high dividend.

With interest rates so low, investors are searching for a higher yield. Just like the tech bubble, they think valuations don’t matter any more.

It’s a dividend mania! The papers have article after article about dividend investing. Investment-focused advisors are recommending dividend funds. Calls on the phone-in shows on BNN are all about dividend stocks. There are shows only about dividend investing.

Exactly like the tech bubble in the 1990s.

Valuations are high (20-30 P/E), growth is low (often negative).

The tech bubble had high valuation with high growth, but no profits. The dividend bubble is high valuation with profits, but little or no growth – often declining businesses.

Of course, most stocks pay a dividend, but top fund managers invest properly based on quality and value. They don’t over-pay for a dividend.

The top fund managers are avoiding high dividend stocks and low volatility stocks today.

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