It’s no secret that dividend investing has been pretty hot over the last few years. Driven by low interest rates and the lack of good income opportunities in traditional products, investors have continued to plow big bucks into those stocks and sectors that pay big dividends.
But there’s a slight problem waiting in the wings – and it’s spelled with just three letters: F-E-D.
As early as next week, interest rates could be on their way up. The Federal Reserve has hinted, for what seems like months now, that a rate hike could be looming, and the data seems to support at least the case for higher rates.
With that in mind, dividend stocks – particularly high yielding ones – could be in jeopardy. Or at least, that’s what conventional wisdom would have you believe.
Rising Rates = Bad News for Dividend Stocks…
The general rule of thumb is when interest rates rise, anything with a high yield is sent packing. The idea is that investors can now get higher yields from “safe” assets like Treasury bonds, CDs and cash – so why would they want to own risky mortgage REITs or utilities? This concept has been drilled into our heads for so long that even the thought of rising rates has sent dividend stocks tumbling in recent quarters, only to rebound when Janet Yellen et al. said they were joking about raising rates.
But that behavior may actually be all wrong.
