Clarfeld, a co-manager at ClearBridge Equity Income Builder Strategy, says his team is more focused on compounding dividends over time.
“We believe the power of dividends is not simply the upfront yield. But it’s the combination of the upfront yield and the ability to grow that dividend over time,” he told Morningstar. “And what we see today, where we find the most attractive investment opportunities, is in high-quality dividend payers–companies that might be paying 3%, a nice yield, but not astronomical, but can grow that at 7%, 8%, or 9% a year.”
Josh Brown at the Reformed Broker blog recently wrote that aside from high dividend payers, investors should focus on companies that are growing their dividends at high rates. [Dividend ETF Yield Even More Critical in Sideways Markets]
“Is there a bubble in dividends? We think some of the highest-yielding components of the market from a dividend perspective do seem maybe a little fully valued,” Clarfeld added. “But the sweet spot of what we look for–which is significant dividends, attractive dividends, but really dividend growers–we don’t think they are overvalued at all. We continue to think they are very attractively valued and set up to do very well for the foreseeable future.”
Full disclosure: Tom Lydon’s clients own DVY.