But when everyone is preaching the same game plan, there can be some drawbacks. So we must ask: With all their newfound popularity, have dividend paying stocks become too pricey?<\/p>\n
Here are three important factors to look at:<\/strong><\/p>\n The flood of funds into dividend payers is making their stocks more expensive.<\/p>\n Here’s how it usually happened over the years; dividend stocks trade at lower price-to-earnings ratios, with the expectation that they’ll grow less quickly than other stocks.<\/p>\n This still remains true. However, the gap between payers and non-payers is shrinking. If you look at the end of 2010, the average price-to-earnings ratio of non-payers in the S&P 500 was 37% higher than the average P\/E for payers; presently it’s at 33%.<\/p>\n This recent phenomena has been caused by the introduction of the short-term investor into the dividend market<\/a> and the drawback of the higher prices could mean that they may not be able to duplicate last year’s strong performance. The fact that the sector is “en vogue” has also seen some yields push down.<\/p>\n Don’t Fret Long-Term Investors<\/strong><\/p>\n If you’re investing or thinking about investing in dividend-payers, you have to keep this a long-term strategy because that will be the most beneficial play.<\/p>\n Because they tend to be less volatile than non-payers, they tend to lag in a bull market, but hold up better when markets falter, says Howard Silverblatt, the senior index analyst at Standard & Poor’s. “Basically, the dividend acts as an anchor holding the stock in place,” he says.<\/p>\n And because many companies increased their dividends over the course of 2011, dividend investors will be getting more income through 2012. “Unless companies cut [their dividends], you almost have to get a double-digit increase this year,” Silverblatt says.<\/p>\n Don’t Overpay<\/strong><\/p>\n Investors should focus on companies that are still growing their dividends and not chase yields<\/span>. “Dividend growers are great inflation protection<\/a> because that yield is increasing every year,” says Steven Roge, a portfolio manager at R.W. Roge & Company. And if the yield is rising, he says the underlying fundamentals of the company are likely improving, too.<\/p>\n Great things to keep in mind\u2026<\/p>\n For more information on dividend stocks, take a look at our dividend investing site map<\/a>.<\/p>\n Good Investing,<\/p>\n Jason Jenkins<\/p>\n\n
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