Ultra-low and negative bond yields are pushing traditional debt investors to look at equities — but buyers should beware of "dividend darlings," a strategist told CNBC.
Investors are flocking to defensive stocks with steady dividends in the hunt for the same level of yield they get from bonds, but Art Hogan, director of equity research at Wunderlich Securities, said these equities were expensive.
"If you are going to add new money to the market, I would be very careful not to do it in those dividend darlings — so things like utilities and consumer staples and telecoms … because I feel like that is a very crowded trade," Hogan told CNBC on Thursday.
"It is starting to unwind a bit, but when you think about the fact that those (stocks) are trading in a multiple that is probably five times average and yielding about 200 basis points less than average … I would be much more comfortable putting it in growth than defensive right now," he said.
Record-low bond yields across the world have helped fuel demand for stocks, which have hit a seven-year rally. The three major U.S. stock indexes — the , Dow Jones industrial average and the Nasdaq Composite — all closed at new highs on Monday for the second time in less than a week.
Bruno Verstraete, managing partner at Zurich investment firm Lakefield Partners, said it was easy to increase yield in the fixed income space — but returns would still be lower than in equities.
"Equities are the new bonds. If you look at fixed income, it is very easy to get yield, either you take more risk or you go long duration. (But) comparing all of these dividend darlings as you call them with their own bonds, sometimes you have infinite more return on creating the dividend," he told CNBC on Thursday.
Lakefield Partners has increased its exposure to telecom stocks — termed dividend darlings by Hogan — to 17.6. percent and held its exposure to consumer goods at 14.4 percent.
Last week, Citi's head of equity trading strategy said "bond refugees" — his term for fixed income investors hunting for yield elsewhere — were interested in stocks that had "low volatility, will not tend to sell off dramatically when there is a market hiccup and will pay a dividend."
"As returns are getting less exciting on the bond side, (investors are saying,) 'what can we look at in equities, which looks as close as possible to a bond?'," Antonin Jullier told CNBC.
