With bond yields plunging to 60-year lows, and the Fed signaling that it would keep short term borrowing rates at essentially 0% until at least the end of 2014, yield-hungry investors headed for stock market in search of income.
And so, in 2011, investing in stocks that paid the highest dividend yields was a "home run". According to Merrill Lynch, high dividend paying stocks produced a total return of +18.5% last year, which included a price return of +12.6%.
Problem was, as so often happens, good ideas in the stock market are taken to extremes, and investors adjust.
The first quarter of 2012 was a miserable one for dividend-paying stocks.
While the S&P 500 was roaring ahead by nearly +13%, dividend-payers were punk performers, up a minor +3% total return for the quarter (again based on Merrill Lynch numbers).
So should you abandon the idea of investing in stocks that pay high dividends?
I don't think so, and neither does the Lex Column in today's Financial Times (the added emphasis is mine):
Yesterday, PepsiCo, ExxonMobil, Dow Chemical, Colgate-Palmolive and Kellogg all reported. A mixed bag to be sure. But they share more than just being household names.