High yielding dividend stocks are commanding historically high valuations, making identifying individual stock values, especially in nontraditional dividend-paying sectors, more critical to value-oriented investors.
This graph compares the dividend yield and valuation premium of large-cap dividend stocks by sector. The valuation premium is a sector’s current valuation relative its own historical valuations.
- The highest yielding sectors — utilities and telecommunications — are also at the highest valuations.
- Sectors offering lower yields, but at much more attractive valuations, like technology, may be compelling values.
- Overall, the current environment shows the majority of proven dividend payers are being well compensated for their superior yields, while better values may be found among sectors not traditionally associated with dividends. In this climate, individual stock selection becomes a much more meaningful determiner of performance.
Dividend yield explains roughly 50% of the variation in historical valuation premium among sectors.
Related reading: Dividend revival
Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.