The chase for dividend yield by investors starved of income as a result of record low interest rates has sent many high yielding blue chip stocks to heady levels.
This rally over the past few years in numerous widely-owned blue chip stocks should have shareholders questioning whether their portfolios have been pushed to the point where there is an excessive level of risk baked into them on account of the market's potential overpricing of high-yield stocks.
The Pengana Australian Equities Fund recently released its September 2015 Quarterly Update in which the fund manager noted that it had undertaken substantial sales of Telstra Corporation Ltd (ASX: TLS), CSL Limited (ASX: CSL) and Nine Entertainment Co Holdings Ltd (ASX: NEC) early in the September quarter.
While Pengana didn't state the reasons for the share sales, given the manager describes its investment style as 'fundamental', one could assume that either they didn't see value in these three companies respective share prices at the start of the quarter or they saw even more value elsewhere – perhaps both!
With the share price of telco giant Telstra dropping by nearly 12% since the start of July, the stock is now trading on what could be considered a more attractive price-to-earnings (PE) multiple of 15.3x.
Meanwhile, bioplasma manufacturer CSL is currently trading almost 3% higher than it was at the beginning of the September quarter and on a PE of around 20x, suggesting perhaps that the stock remains highly priced.
Finally, the share price of television network owner Nine has rallied 5.5% since the beginning of July and is trading on a PE of 11x. Despite the initial attraction the low multiple might bring, this may still be a stock best avoided.
