Many High Dividend Paying Stocks are Expensive

Author Larry Berman

Posted: 17 Apr 2012 re-posted from etfcm

Measuring the TSX back to last August 5th, the day the US debt was downgraded, we have seen no net gains. The weakest sectors by far are energy, materials, and technology thanks to RIM. Financials are up modestly from that specific day, but if measured from 2 weeks before that, they are down. This underscores the need for patient investing when it comes to the TSX. For the dividend hungry investors, the difference of a week here or there can mean a 10% total return difference.

The financials and banks in particular are expensive, as are the REITS and lots of other higher dividend paying stocks. There is a shift taking place that has years to play out. We will slowly start to see the higher dividend payers trade at much higher than historic multiples and growth sectors that are low dividend payers will therefore lose multiple points. Because bond yields are paying nothing after inflation and taxes, this trend will likely continue and create yet another unintended consequence—utility stocks are trading at very expensive multiples.



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