In the late 90′s people were pouring money into internet stocks. Then the dot-com bubble burst and between 2000 and 2002 the Nasdaq (the market that trades in tech stocks) lost 78% of its value.
Next came the housing bubble where low-interest rates (and the banks lending money to anyone with a pulse) led to a huge run up in real estate prices. By 2009 the bubble had burst and there were almost 4 million foreclosures in the U.S.
And while the Canadian real estate market hasn’t popped, sales of single family homes in Vancouver where I live are down 47% from 2011. Prices to follow?
There are some that are now speculating that dividend paying stocks are a bubble because of their popularity and recent run up in prices. Unless central bankers start raising interest rates, I think stable companies paying increasing dividends will be in a bull market for some time.
Conventional wisdom was that you should take the number 100, subtract your age and that is the percent you should have in stocks. The rest should be in bonds and fixed income. The problem is that with rock bottom interest rates, those bonds are now paying almost nothing. Retired people who relied on that income are now in shock as the bonds they held roll over at todays rates.
The U.S. can’t raise interest rates either without crushing the already fragile real estate market and increasing the interest they pay on the national debt. With the national debt spiralling out of control, will they ever be able to afford to raise interest rates?
So retirees now have a choice: Learn to live on 1/3 of what they used to, or venture out into dividend paying stocks. As money has been flowing back into dividend paying stocks, the prices have been pushed up.
Here is an example of a few popular Canadian dividend stocks.
Bell – 1yr return 16.55%, dividend yield 4.88%, total return = 21.43%
Telus – 1yr return 23.87%, dividend yield 3.64%, total return = 27.51%
Royal Bank – 1yr return 15.09%, dividend yield 4.13%, total return = 19.22%
Scotiabank – 1yr return 11.16%, dividend yield 4.11%, total return = 15.27%
TransCanada – 1yr return 15.15%, dividend yield 3.73%, total return = 18.88%
Fortis – 1yr return 0.57%, dividend yield 3.68%, total return = 4.25%
Enbridge – 1yr return 19.15%, dividend yield 2.64%, total return = 21.79%