In the words of the chief investment officer of investment advisor firm Richard Bernstein Advisors, “People are paying a lot to get the dividend” and “To think it’s safe is naive.” Intriguing and cautionary at the same time, it again shifts the focus to the ever-enticing concept of dividend investment.
In recent times, stock markets across the financial world have been grappling with macroeconomic issues like lackluster growth in China, slump in oil prices, strengthening of the U.S. dollar and depressed energy markets. However, the U.S. stock market is currently basking in the much-awaited economic recovery, buoyed by factors like employment growth and robust manufacturing data.
A Mixed Bag of Factors
Even in this gyrating, sideways market, the major driving factors behind the larger mixed picture are clear. The undeniable strong spots would be the rebound in materials, energy and financial markets over the past couple of weeks and the overall upbeat reaction of the global stock markets to the Federal Reserve’s stance regarding interest rates.
Despite these short-term bullish sentiments and recovery in stock and commodity markets, speculations over the long-term sustenance prevail in the minds of investors. Amid such concerns, Fed’s reluctance to stall a further hike in interest rate – presently pegged at 0.25% to 0.50% – may seem prudent to placate investors. This is also because investors don’t seem to have recovered from the recent collapse witnessed in the month of January.
The Dividend Route
According to a recently published article in Reuters, investors pay approximately $42 for one dollar of dividend they purchase in the S&P’s 500 stock index, a marked rise over the average of $29 since 1935. In all probability, uncertain global financial and economic developments have been acting as spoilers, leading to the random dumping of portfolio staples for dividend stocks by income investors.
