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.
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of "Max Wealth" and Heatseekers.