The New Dividend Investing Approach Is The Same As The Old Dividend Investing Approach

QE and financial repression through ZIRP have pushed up prices and forced savers into riskier investments.

One area where investors are doing a deal with the devil is dividend paying stocks. Investors are being pushed up the risk curve (by pushing up prices), hoping that an investment in a dividend paying stock is better than a non-dividend paying stock and that such an approach serves as a proxy for bond yield.  They are wrong on both accounts. Theory posits that there is no difference between a dividend paying stock and a non-dividend paying stock (Modigliani equivalence theorem). Evidence shows that when the market swoons, dividend paying stocks swoon just as much as non-dividend paying stocks. Equity risk is still equity risk. If it is true that ZIRP has artificially pushed up dividend stocks relative to non-dividend stocks, then there will be an additional cost to pay when valuations across the equity market equalize.

Hoping that dividend paying stocks provide a bond-like cushion with equity like appreciation is wishful thinking. There is no free lunch in the markets.

Additional Notes:

This is true of investors seeking dividend cover in tech stocks. I doubt they are fully factoring business risk.

It is especially important for investors to not be pennywise and pound foolish. Seeking a 3% yield vs a 2% yield for the market infers taking on additional risk. And it is especially important for investors to beware the addition of a 3% yield pales in significance to a 25% fall in price.

Finally, once dividend cuts come down the pike they have a double whammy effect wrt to falling dividend and falling price. What worked on the way up - increasing dividend, increasing price - works in reverse on the way down (as Cramer would say, "that is a house of pain")