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Have No Fear; You Can Always Hide In High-Dividend-Paying Stocks

Tyler Durden's picture




 

Investors are piling into income-generating stocks at the fastest pace seen in decades. In the second zero-rate environment created by the Fed over the last decade, JPMorgan's Michael Cembalest brings attention to the frenzy of demand for income from 'safe' stocks. This has led to a rush into income-producing stocks (e.g., ones that pay high dividends). As shown in the accompanying chart from Mike Goldstein at Empirical Research, the P/E ratio of the highest dividend payers is at a record valuation premium compared to the P/E of the broad market. Of course, this will not end well; as the constant apples-to-unicorn comparison of 'risky' stock dividend yields to risk-free Treasury yields (risk-free in terms of capital return - no matter what your view on inflation/default) that we have pounded the table (here and here most recently) about remains a stock-seller's commission-maker's portfolio-manager's stock-broker's dream.

 

 

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Thu, 08/02/2012 - 13:51 | 2673102 fightthepower
fightthepower's picture

Fuck you Bernanke!

Thu, 08/02/2012 - 14:04 | 2673168 SeverinSlade
SeverinSlade's picture

Fuck the Ber-nank.  Fuck, fuck, FUCK the Ber-nank!

Thu, 08/02/2012 - 14:09 | 2673197 redpill
redpill's picture

I think there was a typo.  It's not risk-free Treasury yields, it's yield-free Treasury risk.

Thu, 08/02/2012 - 14:13 | 2673214 malikai
malikai's picture

Headshot!

Thu, 08/02/2012 - 14:33 | 2673295 TruthInSunshine
TruthInSunshine's picture

I love the smell of dividend paying equities yielding .05% to 4% annualized dividend income for several months to years whille the underlying equity declines 10% to 40% over the same time frame.

 

The new twitter campaign for All Markets Broken By The Bernank is:

#BernankBrokeBusiness

-or-

#BernankBlowsBigBubbles

Thu, 08/02/2012 - 14:46 | 2673362 AldousHuxley
AldousHuxley's picture

old news

https://personal.vanguard.com/us/insights/article/fund-announcement-0524...

 

Due to a sharp increase in cash flow into Vanguard High-Yield Corporate Fund—more than $2 billion in the last six months alone—we've closed the fund to most new investors.

While issuance of high-yield securities remains strong (the first quarter of 2012 saw the highest amount on record), we remain sensitive to the potential liquidity challenges that can arise in the market.

 

This isn't the first time Vanguard High-Yield Corporate Fund has closed because of high demand. In June 2003, the fund closed after it had a cash inflow of $1.4 billion during the first five months of the year.

Since 2003, fund hasn't made new highs.

 

End of high yields.

Thu, 08/02/2012 - 21:54 | 2674638 Buck Johnson
Buck Johnson's picture

Bingo, no such thing as a free lunch.  

Thu, 08/02/2012 - 14:21 | 2673253 Silver Bug
Silver Bug's picture

Nothing is safe except gold and silver these days.

 

http://goldisking.blogspot.ca/

Thu, 08/02/2012 - 13:51 | 2673104 Muppet of the U...
Muppet of the Universe's picture

Baby boomer generation. 

Thu, 08/02/2012 - 14:14 | 2673219 spastic_colon
spastic_colon's picture

Please define "highest quintile of dividend payout ratios to the market" surely this does not skew the results /sarc off

Thu, 08/02/2012 - 13:54 | 2673110 Duke of Con Dao
Duke of Con Dao's picture

hey Tyler

I had that clip from Fight Club on my YouTube channel DukeOfConDao where Marla exhales and sez:

"I havent' been fu&ked like that since grade school " (8 seconds) and it got flagged

for copyright infringement. what's up with that???

...

what happened to 'Fair Use'? 

Thu, 08/02/2012 - 14:01 | 2673155 SeverinSlade
SeverinSlade's picture

Perhaps you should consider talking to Newscorp or their subsidiary FOX who owns the rights to Fight Club...

Thu, 08/02/2012 - 13:54 | 2673114 kito
kito's picture

whats the dividend on zero? wait....where is my calculator.....??????..............

Thu, 08/02/2012 - 14:13 | 2673216 mktfizx
mktfizx's picture

shows up "E" on mine

Thu, 08/02/2012 - 13:57 | 2673130 unwashedmass
unwashedmass's picture

 

all true for the tried and true old people's stocks -- EXCEPT...EXCEPT....

with Bernanke/Sack/Simon's determined exclusion of the gold and silver stocks from their daily jack ups.....

you have stocks with glorious dividends selling below  book value!!!!!!!!!!!!!!!!!! Not that we peasants are supposed to be looking there....

 

NO PEASANTS!!! BACK~~ BACK!!!!! AVERT YOUR EYES!!!! No gold stocks!!! No silver stocks!!!! 

Thu, 08/02/2012 - 13:59 | 2673136 Nonexistent Uni...
Nonexistent Uninvented God's picture

"risk-free Treasury yields

What a bunch of fucking retards. 

Thu, 08/02/2012 - 14:06 | 2673180 SeverinSlade
SeverinSlade's picture

Risk-free at actually MAKING a positive return on your investment (after factoring in what amounts to a negative yield when accounting for inflation, plus the fact that you will be paid in worthless fiat).  Not risk-free on investing in the biggest bubble of all time.

Thu, 08/02/2012 - 14:52 | 2673386 AldousHuxley
AldousHuxley's picture

CASH = negative return

US Treasuries = risk free return = inflation

 

 

10% equity return

- 15-38% tax on capital gains

- dividend tax

- 3~4 treasury inflation offset

- risk adjustment

- 02.~1.5% annual fees on mutual funds, etf, etc.

- trading costs

- your hourly wage X time wasted filling out additional taxes

- your hourly wage X time wasted looking at stock charts, reading bloomberg news, just keeping up to date

-------------------------

NET RETURN = NOT WORTH IT

 

Your local cop doesn't worry about any of that and gets pension and healthcare for LIFE.

 

Thu, 08/02/2012 - 14:03 | 2673163 Getting Old Sucks
Getting Old Sucks's picture

They will implement dividend austerity there too soon.  They'll need it to keep operating.

Thu, 08/02/2012 - 14:03 | 2673164 Doublescythe
Doublescythe's picture

Find a canary

A bird to bring my message home

Carry their obituary

Europe doesn't have a bone.

Thu, 08/02/2012 - 14:05 | 2673171 Flakmeister
Flakmeister's picture

What else would you expect? 

This is the real flight to quality, where quality is defined as something that generates an acceptable cash flow.... Well, at least until it doesn't....

Thu, 08/02/2012 - 14:07 | 2673184 Dr. Engali
Dr. Engali's picture

Never has a dividend  been cut before......Nevar.

Thu, 08/02/2012 - 14:12 | 2673209 mktfizx
mktfizx's picture

Conventional wisdom rules!  Until it changes.

Thu, 08/02/2012 - 14:18 | 2673229 Mitch Comestein
Mitch Comestein's picture

Off the subject, but if you did not notice, Kyle Bass's MGIC is getting taken to the woodshed today.  It is down 55%.  I guess the pig really is not thru the python just yet.

Nothing is safe!!!  The bear is hungry and pissed.

Thu, 08/02/2012 - 15:15 | 2673474 Mitch Comestein
Mitch Comestein's picture

To update you.  MGIC is at al new all time low.

Thu, 08/02/2012 - 20:49 | 2674500 Coreadrin
Coreadrin's picture

Holy shit, do I feel bad for anyone who bought that stock back when... well, ever, actually.

Thu, 08/02/2012 - 14:16 | 2673232 Boilermaker
Boilermaker's picture

Just plow your money in the IYR and REITs.

They never ever ever fucking go down.  Literally the only financial instrument that will be relentless propped up without any consideration of underlying value or muliples.

Thu, 08/02/2012 - 14:59 | 2673408 AldousHuxley
AldousHuxley's picture

they went down, you just don't notice it within america using dollars.

try selling that and go vacation abroad to gauge true value.

 

compare IYR versus gold since 2007.

 

there is a reason why wall st journal is full of $10,000,000+ mansions on sale.

Thu, 08/02/2012 - 15:06 | 2673436 Boilermaker
Boilermaker's picture

IYR and REITs are involved with commercial real estate. 

Thu, 08/02/2012 - 14:16 | 2673235 RSloane
RSloane's picture

I feel so much better now knowing there are so many safe havens!

Thu, 08/02/2012 - 14:20 | 2673247 mrktwtch2
mrktwtch2's picture

it makes sense..the central banks are driving interest rates to zero hence you have to get yield somewhere..

Thu, 08/02/2012 - 14:32 | 2673303 Jim B
Jim B's picture

true, but if the market crashed.....

Thu, 08/02/2012 - 23:23 | 2674801 Mitch Comestein
Mitch Comestein's picture

Crash is only one of the risks.  You need to look at the balance sheets.  Many of these companies are hurting.  they are borrowing to buy there own stock and pay the dividends.  The market will soon realize that this cannot go on, resession, depression (gasp!), or otherwise.

I sold PM today.  I thought she was a great stock.  I checked the balance sheet resently and realized that the equity is close to going negative.  that's bad. 

CUT, CUT, CUT.  That will be the montra going forward. 

Thu, 08/02/2012 - 14:21 | 2673251 Papasmurf
Papasmurf's picture

I'm waiting for a sell signal from Cramer, promoting high dividend blue chips as the place to be.  Then it's time to bail out.

Thu, 08/02/2012 - 14:22 | 2673263 warezdog
warezdog's picture

LOL safe stocks just because they've had a record of paying divs? WTF? NO presendence has ever been established for trying to make money and paying divs in a failing economy like this one, EVER.

Thu, 08/02/2012 - 14:23 | 2673264 PlausibleDenial
PlausibleDenial's picture

Check out what happens to the taxation of dividend inncome for some come 2013.  Breathtaking.  Watch rush from as soon as more people wake up.

Thu, 08/02/2012 - 14:25 | 2673276 casey13
casey13's picture

There is no such thing as risk free. There is no government in history that did not eventually default on their bonds one way or another. With the current debt loads it is guaranteed.

Thu, 08/02/2012 - 15:14 | 2673471 Papasmurf
Papasmurf's picture

No one cares about Wall $treet and their non-productive bankster scum.  Main Street will recover when Wall $treet is hung out to dry.

Thu, 08/02/2012 - 15:25 | 2673519 madcows
madcows's picture

Correction:

 

...when Wall $treet is hung out to dry.

Thu, 08/02/2012 - 14:38 | 2673334 sessinpo
sessinpo's picture

Let us not forget the potential for taxes to go up on dividends at the end of 2012. I beleive the rate goes up to 43% on dividends if nothing is done - part of that fiscal cliff.

Thu, 08/02/2012 - 14:40 | 2673341 Let The Wurlitz...
Let The Wurlitzer Play's picture

But Jim Cramer at CNBS said I shopuld plow ALL my money into these stocks.

Thu, 08/02/2012 - 14:46 | 2673365 Mitch Comestein
Mitch Comestein's picture

I just dumped Philip Morris International today.  Yes, it pays a dividend.  However, its equity is about to go negative.  Thus, said dividend will be cut in the future.  I think ATT dividend will be cut in the next five years too.  50% move in dividend stocks signals it is time to SELL!

CHECK the balance sheets on a lot of these companies.  They will be in trouble if the economy softens.  EXCLUDING the techs(Intel, CSCO, Msft), MMM, MRK, & JNJ, a lot of them have current ratio's less than 1.  All it takes is one bad year then....cut cut cut.

Thu, 08/02/2012 - 15:18 | 2673488 Papasmurf
Papasmurf's picture

Cash on the books is a bad place to be if he get deflation or hyperinflationary deflation.  AAPL is a good example of holding too much cash with no prospects to invest it.

Thu, 08/02/2012 - 15:02 | 2673421 Getting Old Sucks
Getting Old Sucks's picture

You know it's bad when using your credit cards are the best yields you can get.  Getting points or cash back and paying in full monthly, that is.

Thu, 08/02/2012 - 15:34 | 2673569 ebworthen
ebworthen's picture

This has been the FED plan all along, to push money into the equities casino, and when debt bubble II bursts bankers make out like bandits yet again.

Your money is not safe in the markets, with a bank, and certainly not with the government.

Jim Cramer has been relentlessly pumping dividend yielders with every move down in the casino.

I'd give him an ounce of gold to put on a Bally's casino floor uniform and pose in front of a roulette wheel with that shit eating grin of his.

S & P 666 again before this is all over with.

Thu, 08/02/2012 - 19:16 | 2674324 PrintingPress
PrintingPress's picture

Circus Circus uniform!

Thu, 08/02/2012 - 15:41 | 2673579 madcows
madcows's picture

Why put anything in stocks when you can put cash in Corporate bonds.  Far less risk lending to a company than to a government or in the stock market, and the YTD rate of return is over 8%.  That's even better than Spanish bonds at junk status.

Thu, 08/02/2012 - 15:40 | 2673594 BeetleBailey
BeetleBailey's picture

AGNC.....dipped my beak in it @ 27....pays 14.02% yield  (was paying a whopping 19% when I bought)

Now at 35.......again...dipped my beak....hard stop at 28 if all goes to hell....mortar...not the fucking brick.....but my clients love it.

Other than that.....Gobi desert.......

FUCK Jim Cramituphisass..........FUCK YOU Ben Berschmake.....

FUUUUUUUUCK YOU Jamie BlankfuckKravitO'Neillstein!

Thu, 08/02/2012 - 17:54 | 2674135 q99x2
q99x2's picture

Will investors get enough return from dividends before their investments are vaporized. Seems to me like someone needs to have their head examined.

Thu, 08/02/2012 - 19:13 | 2674318 Kreditanstalt
Kreditanstalt's picture

DIVIDEND CUTS...DIVIDEND CUTS...DIVIDEND CUTS...DIVIDEND CUTS...BRING 'EM ON!!!!

There must be some penalty for cowardice and risk-avoidance.

Thu, 08/02/2012 - 23:18 | 2674793 Mitch Comestein
Mitch Comestein's picture

I am guessing that the bull market in P/e expansion for Divy paying stocks starting in 1999 is over!  I fell in love with MO in 2001.  She gave me two children KFT and PM.  I have sold them both.  No I have to say goodbye MO.  You had a good run and now it is time to go.  Parting is such sweet sorrow.

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