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High-yield Dividend Stocks

Disconnect Between High- Quality Stocks versus Low-Quality Stocks (Value versus Growth)

Since the September 2011 announcement of Operation Twist by the Fed, 30low quality stocks ranked C&D, at the bottom of the S&P 500, outperformed the group of the highest quality stocks ranked A+ by approximately 10% per year for the past three years ending August, 2014. The current average multiple of the low quality-growth stocks and the high quality- value stocks is about the same at 16 to 17 times earnings. Utilities and REITS can be examples of low quality, no growth sectors that are interest rate sensitive. For example, using Bloomberg data, the S&P Utility group is projected to grow next year’s earnings at 4.19% and trades at a forward 15.25 earnings multiple. On the other hand, the S&P 500 Index is projected to grow earnings at 10.81% and trades at a forward 13.44 earnings multiple. This in my opinion illustrates the attractiveness of high quality growth stock investments versus low quality, no growth, interest rate sensitive stocks.

30Merrill Lynch