5 Undervalued ETFs For Dividend Lovers

Dividend investing is among the investing themes that are on a tear this year amid piles of uncertainty. Wall Street saw the worst start ever to a year in 2016 and recovered modestly thereafter. But it is yet to regain its mojo fully though key U.S. indices hit several highs at the start of Q3.

Overall, China-led global market crisis, upheaval in oil prices, uneven growth momentum in the U.S., the Brexit, and deflationary fears in Japan and the Euro zone have kept high risk securities on the edge this year, except some occasional relief rallies. For obvious reasons, a drive to safety boosted demand for U.S. treasuries this year, bringing down the benchmark 10-year U.S. Treasury bond yields to record lows in July.

Though the U.S. economy offered positive cues recently with some upbeat data points and stoked speculation of a rate hike in the upcoming September FOMC meeting, lackluster job, ISM manufacturing and service sector data for the month of August poured cold water on the rate hike talks. With this, the benchmark 10-year U.S. Treasury yield slipped to 1.54% on September 7, 2016 from 2.24% at the beginning of the year.

Hunt for Dividend Yield, But Dividend ETFs Overvalued?

No wonder, such a low dividend yield would spur investors to rush to dividend destinations. But after an astounding year-to-date rally, most of the dividend ETFs appear overvalued now. If this was not enough, Fed chief Janet Yellen indicated a few months ago that U.S. stocks are pricey.

The Fed noted then that “forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades.” And Yellen also indicated that a prolonged low-rate environment has inflated asset prices.

Not only the Fed, many analysts lately expressed overvaluation fears. Lukewarm U.S. economic growth, still-subdued corporate earnings, global growth issues, no promise of any sustained revival in the oil patch, and the upcoming presidential election in the U.S. definitely raise apprehension over the longevity of the market ascent.

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