1.The Dividend Bull Market Has Pushed Valuations to Record Levels.
Larry Swedroe Weighs In…
The table below shows three value metrics—price-to-earnings (P/E), price-to-book value (P/B) and price-to-cash flow (P/CF)—for two of the market’s most popular dividend strategies: the SPDR S&P Dividend ETF (SDY), with more than $14 billion in assets under management (AUM), and the Vanguard Dividend Appreciation ETF (VIG), with more than $22 billion in AUM. Data is as of July 13, 2016. VIG buys the stocks of companies with rapid growth in their dividends.
The table also shows the two large-cap value ETFs with the most AUM, the iShares Russell 1000 Value ETF (IWD) and the Vanguard Value ETF (VTV). Finally, I’ll compare the value metrics of these funds with that of the SPDR S&P 500 ETF (SPY). As you review the data, remember that the lower the price metric, the higher the expected return. Data is from Morningstar.
The above data makes clear that the popularity of the two dividend strategies (SDY and VIG) has led to a rise in the prices of these stocks and reduced their expected returns. No matter which value metric we look at, the expected returns for both SDY and VIG are now well below the expected returns of the two large value strategies, and also below that of the S&P 500 ETF. It’s an example of the curse of popularity, and what happens when a trade gets “crowded.” Forewarned is forearmed.
Larry Swedroe on Dividends
http://www.etf.com/sections/index-investor-corner/swedroe-irrelevance-dividends?nopaging=1
Dividend Stocks Have Doubled Since Pullback in Mid-2015
www.stockcharts.com
