Companies Boost Dividends, Bending To Investor Demand Instead Of Pursuing Growth; Fed's Easing Efforts May Be Backfiring As Investors Seek Income Strategies To Counter Historically Low Rates; And A Dividend Bubble May Be In The Offing

Monday, December 03, 2012 07:59
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Companies Boost Dividends, Bending To Investor Demand Instead Of Pursuing Growth; Fed's Easing Efforts May Be Backfiring As Investors Seek Income Strategies To Counter Historically Low Rates; And A Dividend Bubble May Be In The Offing

Tags: bonds | dividends | investing for income

The Fed’s goal of incentivizing investors to go back into equities with its series of quantitative easings may be backfiring.

 
Investors are primarily choosing dividend-paying stocks and companies that are buying back shares. This means policy makers are forcing capital into income-producing assets instead of growth seeking as the Fed is hoping for.

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US companies spent $650 billion on share buybacks in 2011 and only $580 billion on capital spending. The sectors receiving the most capital were given the lowest stock valuations by investors.
 
Companies are reacting to investor demand. Healthcare companies are cutting back on research to boost dividends. Telecommunications companies have the highest-paying dividends of any other sector.
 
Dividend funds have even replaced growth funds in emerging markets as the top-selling equity products.
 
If taxes on dividends are raised, however, the tide may shift back toward growth. Of course, all of that depends on whether a compromise is reached on the looming fiscal cliff.
 
Some analysts are already warning of a possible dividend bubble, saying that dividend-paying stocks have become way overpriced because of investors’ hunger for income yield in an historically low interest rate environment.

 

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