By Prieur du Plessis,
writer of the Investment Postcards blog (www.investmentpostcards.com)

Given the plethora of market uncertainties, over the past few months investors have started placing an increasing emphasis on dividend yield. In particular, multi-national companies operating in regions or sectors that would enable them to grow dividends over the next few years have gained favor. These so-called ‘dividend aristocrats’ have recorded strong relative performance compared with the benchmark indices, as illustrated by the relative price chart below of the S&P 500 High Yield Dividend Aristocrats Index versus the S&P 500 Index.

Click to enlarge:

Source: StockCharts.com

This trend raises the raising the question: Are we seeing a dividend bubble?

I concur with the answer provided from across the pond by David Fuller, co-author of FullerMoney, as follows:

The short answer is not yet, but all good trends eventually develop some bubbly characteristics, of a greater or lesser degree. A number of high-yielding, multinational ‘Autonomies’ have shown impressive relative strength this year. Two warning signs to watch out for are: 1) trend acceleration relative to their 200-day moving averages; and 2) price-earnings ratios that are clearly higher than most other sectors or the market generally.

Another test for these shares, for which I maintain current relative strength is understandable, will occur when a stronger overall market environment revives ‘animal spirits’ sufficiently for investors to chance their luck in small-caps and other laggards.

Also read the The Wall Street Journal’s recent article, “Dividend Stocks Become the Heroes – Shares Often Derided as for ‘Widows and Orphans’ Are Outdoing Their Lower-Yielding Cousins”.

Read more related posts:

1. Our Top 25 Dividend Growth Stocks Are Dirt Cheap