Yesterday, Fool analyst Morgan Housel presciently asked readers to consider whether or not we're in the midst of a dividend bubble, akin to the technology sector at the turn of the century or the more recent housing boom and bust from which the economy is still recovering.
The evidence he provided was convincing. He pointed to Consolidated Edison (NYS: ED) , a dividend-paying utility company, that's seen its shares return 50% in the last two years and is now sporting a historically low dividend yield. And to Altria (NYS: MO) , the dividend-paying maker of cigarettes, that's trading at its highest valuation since 1998 despite a string of dismal earnings reports as smoking rates decline.
He then discussed how McDonald's (NYS: MCD) , a favorite of income investors, now trades for 19 times earnings after doubling in price in the past two and a half years. And finally Caterpillar (NYS: CAT) , the dividend-paying manufacturer of heavy machinery, which has seen its dividend approach its lowest yield in a decade after the company's share price similarly doubled in the last few years.
What's an income investor to do?
I agree that many dividend stocks look expensive right now. Notice how as their share prices have gone up, many of them have seen their dividend yields plummet over the last few years, even as they've increased their dividend payouts. That's left income-seeking investors with fewer and fewer secure avenues for yield.
My recommendation is to take a good look at technology giant Intel (NYS: INTC) -- I'm so confident, in fact, that I'm ready to make a CAPScall on the company. First, it pays a healthy 3.1% dividend yield, and unlike Consolidated Edison and Caterpillar, its yield has been steadily increasing over the last decade. Second, it's trading for an extremely reasonable 11 times earnings. And finally, as my colleague Alex Planes argued convincingly, its future in both the cloud and mobile computing spaces is bright, to put it mildly. All of these factors, in turn, lead me to believe that Intel has been spared of the pernicious effects of a potential dividend bubble.
Beyond this, I recommend that you read afree reportour analysts drafted revealing 11 dividend stocks that offer you both piece of mind and a healthy yield. To learn the identity of these companies before they too are caught up in the dividend bubble,click here now -- it's free.
At the time thisarticle was published Foolish contributing writer John Maxfield does not own shares in any of the companies mentioned above. The Motley Fool owns shares of Altria Group and Intel.Motley Fool newsletter serviceshave recommended buying shares of McDonald's and Intel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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