"Income investors" need to be careful, they can be at higher risk than their "safe" approach might indicate. An article in today's WSJ points out some pitfalls:
-- A recent and unusual correlation between stock prices and dividends. The growth in investors hunting for dividends has pumped up the prices for high dividend payers==an likely asset bubble that will cause a significant loss in balances when the values reset. The drop could make up for many years of "safe high dividends" investors were expecting.
The link:Dividends Can’t Drive This Market Forever - MoneyBeat - WSJ
Add to this the "normal" issues with dividend-focused investment approach (typically highly focused in certain market sectors= uncompensated risk, etc)
TANSTAAFL
-- A recent and unusual correlation between stock prices and dividends. The growth in investors hunting for dividends has pumped up the prices for high dividend payers==an likely asset bubble that will cause a significant loss in balances when the values reset. The drop could make up for many years of "safe high dividends" investors were expecting.
-- Many companies paying increased dividends despite lack of earnings growth. To pump up stock prices, a response to the demand for high dividend stocks. Obviously unsustainable, will likely end badlyThe correlation between the S&P 500 and the per-share earnings of its components fell to 0.55 at the end of June from 0.90 a year earlier. That relationship, while still mildly positive, was at its lowest since 2002, according to S&P Global Market Intelligence.
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Over the past decade, the two had been highly correlated based on the traditional premise that the more companies earn, the higher their stocks should rise. But the breakdown is one sign that other factors are driving the market.
Enter dividends, which are finding favor among investors who are starved of yield in the fixed-income markets or who are looking for stocks that they see as less risky.
That’s elevated the link between the S&P 500 and dividend yields of its components, or the annual percentage of the share price paid out in dividend income for the 12 months through each quarter. The correlation was at 0.80 at the end of the second quarter, compared with its average of minus-0.1 since 1941. It had been negative as recently as September 2014, according to S&P.
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The link:Dividends Can’t Drive This Market Forever - MoneyBeat - WSJ
Add to this the "normal" issues with dividend-focused investment approach (typically highly focused in certain market sectors= uncompensated risk, etc)
TANSTAAFL