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Recent Market Action From A Value Investor's Perspective

Mar. 06, 2020 2:24 AM ET44 Comments


  • Demand for quality dividend stocks has driven valuations to extreme highs for most of the best-of-breed dividend growth stocks.
  • I provide examples in the video of just how expensive the Dividend Aristocrats currently are.
  • Regardless of the overall market, there is always value to be found.
  • Looking for more stock ideas like this one? Get them exclusively at The Dividend Kings. Get started today »


For some time now, I have been pointing out that the stock market as measured by the S&P 500 (SPX) has become moderately overvalued. However, even more to the point, I still believe that to be true even after the price corrections, we have experienced recently as a result of the coronavirus. In other words, I believe that stocks remain expensive, and therefore, might represent poor long-term returns going forward.

The following earnings and price-correlated FAST Graph of the S&P 500 illustrates the veracity of my above statements. The orange valuation reference line on the graph is drawn as a 15 P/E ratio. The dark blue line is drawn as a normal P/E ratio valuation reference line is a 17.47 P/E ratio. As you can see, the market has commonly traded between those two valuation reference lines since calendar year 2000. However, you can also see that the market was overvalued in 2000 where the price was significantly above both valuation reference lines.

As a result, the S&P 500 from a performance perspective resulted in what has been called the lost decade. From January 31, 2000 through January 29, 2010, the total annualized rate of return of the S&P 500 was -1.1%, and that includes dividends. Although this time frame also includes both the recession of 2001 and what I call the Great Recession of 2008–2009, it should be clear that excessively high valuation was the main cause of poor market performance over this time frame.

As depicted in the pop-up on the below graph, note the P/E ratio of the S&P 500 was 28.22 on January 31, 2000. As you can see in the FAST FACTS to the right of the graph, the current blended P/E ratio of the S&P 500 is 19.02. Although this is not as high as the market’s valuation

If you’re primarily interested in investing in high-quality dividend growth stocks, I would like to respectfully suggest looking at The Dividend Kings. The service is dedicated towards identifying the highest-quality dividend growth stocks that can be purchased at sound and attractive valuations. Take advantage of our 14-day free trial and see how we can help you identify the most attractive blue-chip dividend growth stocks for your portfolios.

This article was written by

Chuck Carnevale profile picture
Maximize your income with the world’s highest-quality dividend investments
Charles (Chuck) C. Carnevale is the creator of FAST Graphs. He is also Co-Founder of The Dividend Kings, along with Brad Thomas and Adam Galas (Dividend Sensei), offering a premium service on Seeking Alpha's Market Place. Chuck is also Co-Founder of an investment management firm. He has been working in the securities industry since 1970: he has been a partner with a private NYSE member firm, the President of a NASD firm, Vice President and Regional Marketing Director for a major AMEX listed company, and an Associate Vice President and Investment Consulting Services Coordinator for a major NYSE member firm. Prior to forming his own investment firm, he was a partner in a 30-year-old established registered investment advisory in Tampa, Florida. Chuck holds a Bachelor of Science in Economics and Finance from the University of Tampa. Chuck is a sought-after public speaker who is very passionate about spreading the critical message of prudence in money management. Chuck is a Veteran of the Vietnam War and was awarded both the Bronze Star and the Vietnam Honor Medal.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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