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The trouble with big dividends Add to ...

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Investors have many reasons to doubt Wall Street’s high-flying stocks, but the best reason of all may come as a surprise: This market is simply too generous for its own good.

Aswath Damodaran, a professor of finance at New York University and widely followed expert on corporate valuation, says the Achilles heel of the Standard & Poor’s 500 is management’s habit of paying out more to shareholders than companies are generating in profits. Part of this payout comes in the form of lush dividends. Another big dollop comes in the form of share buybacks, in which companies purchase their own stock as a way of goosing the price.

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