Paul Price: You Can’t Buy Past Performance

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Expert Analysis and Commentary

Paul Price: You Can’t Buy Past Performance

Dr. Paul Price Dec 29, 2014

What could be wrong with owning stocks with steadily growing yields? In our ZIRP world those stocks can get overpriced. Funds that hold overpriced shares will be prone to underperformance going forward. Let’s examine a typical Dividend Aristocrat to see why I say that.

Examining a Dividend Aristocrat

Leggett and Platt Returns chart

By objective standards LEG appears overpriced. A regression towards a more normal, 16x, P/E would only support a 12-month target price of $34.40, even if the forward estimate plays out as projected.

What good is a 3% dividend if the shares generating that yield decline by 18%?

The Bottom Line

Disclosure: No positions in LEG, SDY or VIG

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