Steve Mauzy: The five-year run-up in U.S. stocks has been great for long-term investors already in the game. For new investors, the run-up is less great: Value and yield have been largely wrung out of the market. New money must scrounge and claw to unearth quality income stocks.
As an income investor, I can sympathize with the plight of other income investors, particularly those who prefer funds over individual securities. With the S&P 500 trading at 19.5 times current earnings and yielding 1.9%, it’s difficult to argue U.S. stocks, and likely broad-based funds, are undervalued.
So why argue? The better strategy is to simply look elsewhere.
The good news is that beyond our borders value and yield reside. The better news is that value and yield reside in first-world markets. Investors needn’t venture into the risky backwaters of Latin America or Eastern Europe.
I say that because most Western stock markets have underperformed our own. London’s FTSE 100, Australia’s ASX, Germany’s DAX, France’s CAC 40, and Canada’s S&P/TSX all underperformed the S&P 500 in 2013. Relative underperformance suggests these markets are peppered with better income values.
I believe this is the case, which I can prove by way of comparison.
The SPDR S&P Dividend ETF (NYSEARCA:SDY) is a solid income-investment vehicle. The fund holds all the stocks in the S&P 1500 that have raised their dividends every year for the past 20 years. It’s basically a dividend-aristocrat fund composed of America’s largest, most persistent dividend growers.
Unfortunately, the SDY is also a pricey vehicle. The fund trades at 18 times current earnings. Persistent price appreciation has driven the dividend yield down to 2.2%.