Stocks with the highest dividends are relatively costly, even though the federal government is poised to raise taxes on the pay-outs, according to David Bianco, Deutsche Bank AG’s chief U.S. equity strategist.
Bianco drew the conclusion, presented in a Nov. 9 report, by comparing price-earnings ratios.
The chart of the day shows the P/E for the Dow Jones U.S. Select Dividend Index, whose 100 stocks have some of the biggest payouts available, exceeds the Dow Jones Industrial Average’s P/E by an increasingly wide margin.
Higher-dividend stocks are “stretched,” as Bianco put it. That’s because the companies pay out a relatively high percentage of earnings and have less room to grow. This leaves them vulnerable to tax increases, in his view. He singled out the shares of utilities, telephone companies and some health-care and consumer-product makers.