Investors looking for more income are pouring money into these pricey equities that are hitting our "stocks to watch" list now…
You see, both institutional and individual investors have moved out of the risk curve over the past few years to find the strongest income sources. They've explored everything from low-risk bonds to bank savings instruments.
Individual investors in particular have found it challenging to navigate the unfamiliar waters of dividend stocks.
They have rushed to invest their hard-earned dollars into familiar names that paid decent dividends, including electric utility stocks, telecom stocks, pharmaceutical companies, and large oil companies.
These well-known stocks have attracted attention from new investors, who looked for high-dividend payers with share-price gains since 2009 – when the bull market began.
Of course, anytime there is a buying rush in a certain class of securities, prices are pushed higher. And lately, excessive buying pushes prices further than usual, with extra market-moving juice from the U.S. Federal Reserve (which can't last forever, as this chart explains…)
That's why large blue-chip dividend payers are crucial stocks to watch now because they are showing signs of this type of pricing.
Why These Are Stocks to Watch for Overpricing
Yield chasing after an extended upswing is dangerous and could lead to losses far in excess of the income their shares provide.
A good example of a popular sector for blue-chip income investors that has gotten pricey is telecommunications.
At first glance, large companies like these seem to be solid investments as they pay decent dividends. But in fact, they are stocks to watch for overvalue.
A closer look shows that the telecommunications business is intensely competitive with very little overall revenue growth, as the growth in wireless and broad band is offset by the continued loss of wire line customers and weak business billings.
Here are two of the worst telecom dividend payers to buy now.