NVO - 5 Dividend Aristocrats To Sell Before It's Too Late

2024-05-25 07:00:00 ET

Summary

• Buying stocks at record highs doesn't necessarily mean lower returns, and can actually lead to higher returns in the short term.
• Valuations matter, but the metric used to evaluate them is important. Cash-adjusted valuations provide a more accurate picture of a company's value.
• Dividend aristocrats are modestly undervalued, but these five are 50% historically overvalued, a challenging level that has led to long bear markets and poor returns for many years.
• They have priced in three to five years of consensus earnings growth and by 2026 have a return potential of -20% vs 40% for the S&P.
• In the short term, valuation explains less than 7% of stock returns. But in the long term, fundamentals drive 93% of returns. Rebalancing stocks trading at such high valuations is statistically a great way to enhance your long-term returns.

The stock market recently recorded its 24th record high this year.

Naturally, many investors are worried about buying at record highs, thinking stocks are overvalued.

Buying Stocks At Record Highs Is A Smart Long-Term Choice

Stocks have spent a lot of time at record highs.

Buying at record highs doesn't historically mean lower returns. In fact, in the short term, it means higher returns are statistically more likely.

If stocks are at record highs 33% of the time since World War II and stocks go up about 10% per year, doesn't it make sense that buying at record highs would give you historical returns?

Not to mention that momentum is a real alpha factor, and bull markets tend to be backed by solid economies and good earnings growth....

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