Dividend Investors Should Focus on Valuation, not just Dividend Yield
by | Posted 3.6.2013 | Post Comment (No Comments)

Late in 2012, I was expecting that the stock market would decrease, because of the Fiscal Cliff hurdles. Unfortunately, I was not correct and the stocks market is trading close to all-time highs. Because of this bullishness in the markets, many quality dividend stocks are very close to being at the very high end of my acceptable valuation targets. While I usually try to avoid companies trading above 20 times earnings, when a stock trades above a P/E of 17, I might simply avoid it and purchase something cheaper. The more experience I get as a dividend investor, the more I realize that attractive valuation in terms of a low P/E is very important. Another equally important factor is to focus on companies which have the plan and business model that would allow them to grow earnings per share over time. Only after these characteristics are met, would I even look at the dividend metrics of a stock.

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