Value stocks have traditionally constituted the dividend play for yield-hungry investors. But many experts now sing the praise of growth stocks for their dividends.
That’s largely because the value sector has been so picked over for dividends that stocks in it appear overvalued.
For example, utility stocks now trade at a premium to the market as a whole, The New York Times reports. And the average telecommunications stock carries a price-to-earnings ratio 59 percent higher than that of the Standard & Poor’s 500 Index.
Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.
Plenty of cyclical stocks offer dividends – with more attractive valuations.
“That’s where we’ve been focusing our attention these days — on non-traditional, overlooked areas that are more exposed to global economic growth,” David Hone, manager of the William Blair Large Cap Value fund, told The Times.
Technology stocks represent one opportunity, with tech companies now generating 13.8 percent of the S&P 500’s dividend payouts, up from less more than 6 percent in 2007.
Some industrial shares carry a bountiful yield. Chevron’s stands at 3.04 percent, and Eaton, a company that makes power system components, has a yield of 3.19 percent.
One dividend strategy working well is “dogs of the Dow.” That entails buying the 10 stocks in the Dow Jones Industrial Average with the highest yield at year-end.
As of last week, those stocks had produced a total return of 14 percent since Dec. 31, compared to 10 percent for the Dow as a whole, SmartMoney reports.
Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.
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