High Yield Dividend Stocks Are Equity Junk Bonds

The high yield junk bond craze the 1980’s has returned to the current bull market in the form of high yield dividend stocks. And history reminds us how that bubble burst during the stock market crash of 1987.
This time instead of being used to leverage mergers and acquisitions at the corporate level when available capital was not enough; high yield equities are influencing the propensity for daring risk/reward plays by retail investors or their advisors seeking outsized returns to leverage retirement account balances.
At Main Street Value Investor [MSVI] — where quality takes the front seat in all of our equity research — we screened the current high yield dividend stock universe for fundamental strength and found mostly junk.
Here is our argument that high yield dividend stocks are the new equity junk bonds.
The Heidi Game Revisited (Source; NFL Films)
Defining high yield equity is debatable and broad, but for this article, we will distinguish high yield dividend stocks as publicly-traded equities distributing two and a half times the 10-year treasury rate, currently at a 2.42% yield as of October 27, 2017. Thus we arrive at 6% or higher as our arguable definition of high yield equity.
We have assigned the acronym HYDi for a high yield dividend stock — pronounced “Heidi” — recalling the 1968 television movie version of the best-selling 1881 children’s book; and the infamous NFL contest that immortalized it for... Read more