WisdomTree’s Schwartz: Dividend Stocks Still Carry Juice

Tuesday, 13 Nov 2012 08:51 AM

By Dan Weil

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The sharp rise of dividend stocks over the past 3 ½ years has led some experts to conclude those shares are overvalued.

Not so, says Jeremy Schwartz, director of research at WisdomTree, an exchange-traded fund manager.

“As a whole, I don’t think the dividend trade is overcrowded,” he tells Yahoo. “I think dividend stocks are not as expensive as some are making them out to be."

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

The four main sectors for dividend stocks are consumer staples, healthcare, utilities and telecommunications.

Based on historical spreads of dividend yields in these sectors compared with yields for the market as a whole, only one of the four — utilities — is expensive, Schwartz says. “The other three sectors are actually cheap.”

Some analysts say that the tax hikes favored by President Barack Obama for households with income of more than $250,000 would take the starch out of dividend stocks. But Schwartz doesn’t think so.

Research shows only half of dividends go to households at that wealth level, he says. And even those folks keep many of their dividend stocks in tax-free retirement accounts.

Shawn Tully, senior editor-at-large for Fortune, also is bullish, though perhaps on different sectors. “The challenge is shifting from the traditional, overbought categories of income stocks into more overlooked choices,” he writes.

Tully doesn’t think you have to stay away from all high-yield stocks, as paying lofty dividends can impose financial discipline on some companies.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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