Episode summary
Dividends For A Pricey Market | Barron's Streetwise
Barron's Streetwise
· · Hosts: Jack Bary
Summary
The host argues that U.S. stocks look expensive, with the S&P 500 trading at just over 24 times projected earnings, but he stops short of calling for an immediate crash. He contrasts a bearish Deutsche Bank valuation chart, which shows weak or negative 10-year real returns from prior valuation peaks, with Evercore ISI’s far more optimistic case that AI could drive the S&P 500 to 7,750 by the end of 2026 and even 9,000 in a bull case. His view is that short-term market calls are almost impossible, so investors should not make rash allocation changes even if they want to get a little safer.
The episode then turns to dividends as a way to get income and resilience in a pricey market. The host notes that the iShares Core Dividend ETF, DIVB, trades around 15.1 times this year’s earnings estimate and yields about 2.8%, versus just over 1% for the S&P 500. He argues that dividend stocks may help if market prices fall because the income stream can keep coming even when account values drop.
A guest from Franklin Templeton makes the case for dividend growth over high current yield. He says dividend growth strategies have lagged recently but have outperformed over decade and two-decade horizons, and he expects stronger results from companies with broad sector representation and less levered balance sheets. He highlights Apollo, Marriott, and Parker Hannifin as dividend growers, then the host adds three higher-yield names from the income portfolio: RTX, Cisco Systems, and Philip Morris.
Key takeaways
- The host sees U.S. equities as expensive at just over 24 times projected earnings, but he is not confident enough to make a big asset-allocation move.
- Deutsche Bank’s long-run valuation chart suggests high starting valuations have historically led to weak 10-year real returns, including negative returns after the 1929, 1960s, and 2000 peaks.
- Evercore ISI’s base case calls for the S&P 500 to reach 7,750 by end-2026, with a bull case of 9,000 and a bear case of 5,000.
- The host favors dividend stocks as a defensive tool because the income stream can hold up even when market prices fall.
- The guest argues dividend growth strategies can beat static dividends over long periods and favors names like Apollo, Marriott, and Parker Hannifin.
- The host says the income portfolio’s higher-yield names are RTX, Cisco Systems, and Philip Morris, with yields of 1.7%, 2.4%, and 3.3% respectively.
Notable quotes
“We think a dividend growth strategy as a core equity exposure makes a lot of sense in a portfolio”
“The stock market hit record highs in August. Now it's September. Now it's serious season”
“I've got the S&P 500 at just over 24 times this year's projected earnings. And that's high”
How the episode opens
We do think there is an opportunity for companies outside the mag 7 outside of it. That doesn't mean the IT sector will not do well. We think a dividend growth strategy as a core equity exposure makes a lot of sense in a portfolio.
Hello and welcome to the Baron Streetwise podcast. I'm Jack How and the voice you just heard is Matt Quinland. He's a portfolio manager with Franklin Templeton and in a moment we'll hear from him on dividends, growing ones.
He'll share some of his favorite stocks with rising payments. Before that, we'll say a few words about the broad stock market and whether valuation should be making our knees wobble. Is that clear that that's a metaphor for fear or concern, Alexis?
I mean, wobbling knees, that's a universally understood uh
I think so. — People aren't going to be thinking like a medical issue or something like that, right? Okay. Listening in is our audio producer, Alexis Moore. Hi, Alexis. — Hey, Jack.
The stock market hit record highs in August. Now it's September. Now it's serious season.
Kids are back to school. We're moving into uh, you know, cold weather in the Northeast. It's time to get somber and serious about what is next for the stock market and whether it's too pricey.
I've got the S&P 500 at just over 24 times this year's projected earnings. And that's high. I would say that's halfway between kind of high and crazy high.
We're not at crazy high yet, but we're pushing those levels. And that gets me concerned about whether we're headed for a drop. And it's very difficult to say.
I get different perspectives on it every day. Let me share two that came in just in recent days.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- stock market valuation
- dividend strategy
- market expensive
- investing perspectives
Watch the episode
Watch “Dividends For A Pricey Market | Barron's Streetwise” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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