Today is Thu, October 19, 2017 14:12:50 GMT
RSS Follow Us Follow us on Twitter Friend us on Facebook
Contributors Avoid This High-Income Trap
The Top Gold Stock of 2012

This grossly undervalued gold miner is set to surge in the coming months. Learn more in our free report.

Enter your Email Address Here:

Privacy Policy
Sovereign Investor FAQ

The Fed’s zero interest policy is creating another misallocation of capital.

Money market accounts are paying less than 1%. Bonds are paying less than 2%. As a result, investors are desperate for yield.

They’ve been flocking into income-producing stocks at the fastest pace in decades. This frenzy has made many high-dividend stocks really expensive. This is a trap you should avoid.

The chart below from Empirical Research compares the P/E (price-to-earnings) ratio of the highest dividend payers to that of the S&P 500 index. When the ratio is above one, it indicates high dividend-paying stocks are trading at a valuation premium to the broad market.

See larger image

As you can see, high dividend-paying stocks are trading at a record valuation premium.

REITs (real estate investment trusts) and MLPs (master limited partnerships) offer a good example. They’re very popular among income investors because they offer a relatively high yield. But you have to be careful. Some of these stocks have become way too expensive.

For example, Simon Property Group (SPG), a popular REIT, is trading at a P/E ratio of 30. And Kinder Morgan Energy Partners, a popular MLP, is trading at a P/E ratio of 43. Meanwhile, the S&P 500 index is trading at a P/E ratio of 15.4.

This will not end well. You have to be very selective when choosing dividend stocks. That’s why I’ve compiled a list of high-dividend stocks that are still trading at a reasonable price. If you would like to know more about it, click here.


Evaldo Albuquerque
Editor, Pure Income

Recent posts by forexnews