“However, that comes at a cost of bearing volatility during periods of risk aversion, much like we had this past summer and can very well be in store for next several months,” he added. Davis urged investors to have their eyes wide open and understand the risks of using dividend stocks in place of bonds. [Is There a Bubble in Dividend ETFs?]
He’s concerned “we’re seeing from some investors on, say, a dividend portfolio or an equity-like portfolio, they’re equating that as similar to a yield on a bond portfolio, and those are markedly different characteristics in terms of what they may mean for expected returns,” Davis added.
Even within the fixed-income market, investors are stretching for yield.
“We clearly are seeing that in the high-yield fixed-income arena, both in corporates as well as municipals,” Davis said. “Again, I think many investors are doing it with eyes wide open and perhaps are willing to take on greater interest-rate or credit risk. However, I do hope that they do realize that they’re doing so in the process.”
For more information on dividends, visit our dividend ETFs category.
Max Chen contributed to this article.