Recently I’ve talked a lot on my site about yields (here), but today I want to get even more to the point about the crazy negative-yield environment we find ourselves in, and more importantly, what that means for us as dividend investors.
Consider this fact:
There is now $13 trillion of global negative-yielding debt. There was almost NONE in mid-2014. Now, close to 10% of all debt is negative!
The chase for yield, and POSITIVE yield, is real. Consider the following quote from Morningstar’s DividendInvestor newsletter this month, where he talks about an idea called “There is No Alternative:”
“It’s TINA’s market now: There Is No Alternative. This has to be the
least inspiring rationale for a bull market ever. No matter how far
they’ve already run, how high valuations have become, or how pitiful the
underlying economic and corporate fundamentals may be, we’re told we have no choice but to keep holding stocks.”
Does it seem like he believes in the long-term ‘soundness’ of these increased stock prices? No.
So there lies the foundation for my argument. The “There is No Alternative and Negative Yields” argument. The argument that dividend paying stocks are being flocked to like crazy by individuals looking for yield, and individuals who used to look for them in bonds.
The problem arises when these individuals think the risk profile of the stock is the same as the bond. Again from the DividendInvestor, “Even when it pays a large, reliable, and growing dividend, a stock
is still a stock. Excess popularity usually correlates with high
valuations, which can only subtract from future total returns while
adding risk.”
High valuations and low future returns. Interesting. I recently wrote how Realty Income (O) is overvalued now, in my opinion. Realty Income, to me, could be an example of what is happening and will continue
to happen in the near term. Be careful, O’ Dividend Investors, that you
are not buying dividend paying stocks at a significant premium!
What do you think? I’d love to hear your perspective and comments.
If you would like more investing commentary and insights, please visit Passive Income Dude at www.passiveincomedude.blogspot.com where I share my journey to financial freedom through my own
disciplined dividend and real estate investing. Thanks for reading!
