Deutsche AM | Volatile stock markets trending sideways. Ultra-low interest. This is hardly the stuff investor dreams are made of. Under company’s value and what is already priced in. Transferring this from an individual share to the asset class means that this such circumstances, sound dividend payers would seem to have plenty of appeal compared to other asset classes. Current is nothing but an investment style which will either beat other dividend yields are often higher than bond yields. At the same strategies or be beaten by them depending on the market phase. That’s why when it comes to our own dividend strategies, we time, they may offer upside potential, but with lower volatility than other equities. So, is it time to fill your boots with dividend stocks?
Not so fast. Instead, consider the following three questions: How is a company’s value influenced by dividend payout policies? How sustainable are dividends? And, what do current market valuations imply for further upside potential? In a perfect capital 105 market, dividend policies would not influence a company’s value at all. Of course, the world is not perfect, and “imperfections” 100 include taxes, insolvency costs, information asymmetries – and human beings, many of whom currently prefer one bird in the hand over two birds in the bush. Indeed, dividends have 95 historically contributed the lion’s share to the returns of almost all major stock-market indices. Moreover, high payouts reduce 90 the risk of company managers going on unreasonable spending sprees. This takes us to the issue of payout capabilities. Looking at nothing but the current dividend yield is grossly misleading. What is the benefit of high payouts if a company cannot really afford them out of current earnings? The payout ratio gives a clue on dividend sustainability, but it is highly recommended to 80 look back several years, as well as to consider future prospects of generating surplus funds.
In case of a positive assessment, will this corporation’s shares As an asset class, good dividend payers behave just like any other asset class: sometimes they beat the market, beat the market? Not necessarily. You might not be the only one to have figured out these qualities – so they may already be priced in. And so, the same general rule holds as for all equities:
The potential upside depends on the difference between a rates. This is hardly the stuff investor dreams are made of. Under company’s value and what is already priced in. Transferring this from an individual share to the asset class means that this such circumstances, sound dividend payers would seem to have plenty of appeal compared to other asset classes. Current is nothing but an investment style which will either beat other dividend yields are often higher than bond yields. At the same strategies or be beaten by them depending on the market phase. That’s why when it comes to our own dividend strategies, we time, they may offer upside potential, but with lower volatility than other equities. So, is it time to fill your boots with dividend rely on stock picking.
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