The Problem with Dividend Yields

Wall Street Week Ahead: Positive momentum in the face of headwinds | Reuters.

One of the reasons given for this rally is that dividend paying stocks are yielding more than bonds in this ZIRP environment. There is a marked difference between interest and dividend payments; interest rates are guaranteed, while dividend payments can be changed at any time by the corporation at its discretion.

These dividend stocks are much more risky than the market is pricing them, and investors have flocked to them pushing their valuations up markedly. It looks like the Fed’s ZIRP has distorted yet another sector.


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