A boring segment of the stock market is on fire

Mark Garrison Sep 19, 2016
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    Drew Angerer/Getty Images

A boring segment of the stock market is on fire

Mark Garrison Sep 19, 2016
    Drew Angerer/Getty Images
HTML EMBED:
COPY

Utility and consumer companies are not flashy, but they’re having quite a year in the stock market, for now. Operating power lines or selling paper towels aren’t activities that attract media hype and interest the way young tech companies do. But these stable, solid businesses do allow these companies to pay steady and consistent dividends to investors. Right now, those stocks are much in demand.

Like so many things in our economic world, what the Fed and the bond markets are doing have a lot to do with why. Global monetary policy has pushed bond yields way down. Older investors in particular count on bonds for income and frustration with today’s low bond yields has helped push them toward investments offering rich dividends. Thomson Reuters Lipper data show mutual funds and ETFs focused on income stocks had net inflows of $10.17 billion through mid-September of this year.

Moving from safer bonds to dividend-paying stocks may bring investors more income, but it also exposes them to new risk. There are signs the big run for these income stocks won’t last.

“Because so many people have been flocking towards these dividend payers, they have actually been bid up and become a little bit rich in price,” explained Tom Roseen, who heads research services at Lipper. “That’s concerned a lot of investors.”

Big price drops for these stocks could wallop folks who have been chasing those meaty dividends.

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