Punch the phrase "dividend stock bubble" into Google (NASDAQ:
GOOG
) and 3.55 million results come back in less than three tenths of
a second. Apparently, the notion of a dividend stock bubble has
crossed more than a few minds. Some analysts and investors have
even begun characterizing consumer staples, health care,
telecommunications and utilities names as richly valued.
That may not be the case as new research from ETF issuer
WisdomTree (NASDAQ:
WETF
) points out.
"We believe that three of these four high-dividend sectors are
in reality relatively cheaper than they have been on average over
the past 20 or so years," WisdomTree Research Director Jeremy
Schwartz wrote in the note. "Given that we are discussing
relative prices of dividend-paying stocks, we believe the best
metric to gauge whether they are cheap or expensive starts with
the trailing 12-month dividend yield3, which measures the
relationship of a stock's price to the level of its dividends
paid over the prior 12 months, as opposed to the P/E ratio."
Amid a turbulent market environment in 2012, investors have
flocked to ETFs tracking these sectors. Wednesday, the Consumer
Staples Select Sector SPDR (NYSE:
XLP
) and the Health Care Select Sector SPDR (NYSE:
XLV
) are trading near all-time highs. Despite previous calls that
utilities ETFs were
looking expensive on a historical basis
, the iShares Dow Jones Utilities Index Fund (NYSE:
IDU
) and the Utilities Select Sector SPDR (NYSE:
XLU
) are within spitting distance of new 52-week highs.
"The two sector indexes with the highest trailing 12-month
dividend yield spreads in the U.S. equity markets today are
Telecom and Utilities,"
Schwartz said
. "As of August 31, 2012, Telecom had the highest spread of any
sector index, valued at 2.70%, while Utilities had the
second-highest spread, at 2.05%.We believe slower growth
potential would be a very good reason why trailing 12-month
dividend yield spreads are currently higher for Utilities and
Telecom. Sectors characterized by higher growth potential have
tended to exhibit lower trailing 12-month dividend yield
spreads."
Schwartz notes that of the four aforementioned sectors, only
utilities have a trailing 12-month yield that could make the
group look expensive. IDU and XLU have trailing 12-month yields
of 3.34 percent and 3.84 percent, respectively.
Over the 20-year period ending August 31, 2012, telecom names
had an average trailing 12-month yield of 1.54 percent, but that
spread has grown to 2.7 percent, implying the sector is
attractive, according to WisdomTree. Over the same period, the
staples group sported an average trailing 12-month yield that was
only 0.32 percent better than the S&P 500's. As of August 31,
2012, these stocks have a trailing 12-month dividend yield spread
that is at .68%-again, signaling a relatively lower valuation
than the sector's historical average, WisdomTree said.
One option for investors looking to get decent exposure to all
four sectors is the WisdomTree Equity Income Fund (NYSE:
DHS
). In order, health care, staples, telecom and utilities are the
top four sectors weights in the WisdomTree Equity Income Fund,
combing for about 65 percent of the fund's weight. DHS, which has
$572.1 million in assets under management, has a 30-day SEC yield
of 3.86 percent.
Another ETF with ample exposure to all four sectors is the
WisdomTree Dividend ex-Financials Fund (NYSE:
DTN
). Utilities and staples each receive weights of 12.8 percent in
DTN. Telecom garners a weight of 11.3 in DTN while health care
accounts for almost 11 percent of the fund's weight. The $1.2
billion ETF has a 30-day SEC yield of 3.77 percent.
For more on ETFs, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.