Rising rates could continue to knock high-dividend stocks lower

Telecom, utility and real-estate investment-trust company shares already hit

Dec 14, 2013 @ 8:32 am

The prospect of rising interest rates in 2014 is sending shares of high-dividend-yielding companies lower as fixed-income assets become more attractive to investors.

The Dow Jones U.S. Select Dividend Index has lagged behind the Standard & Poor's 500 Total Return Index by 4.6%age points on a total-return basis since April 30. During the same period, the yield on 10-year U.S. Treasuries has risen to 2.88% from 1.67%. The dividend group fell to its lowest level in more than a year Dec. 11 relative to the broader gauge.

The dividend index — made up of 100 companies including cigarette maker Lorillard Inc. and Chevron Corp. — has weakened since the Federal Reserve began bracing investors for a phase-out of its unprecedented monetary stimulus. At the conclusion of a two-day meeting May 1, the Federal Open Market Committee said in a statement it was “prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.”

Amid this environment, “stocks that have been hurt the most are those that benefited a lot from lower interest rates,” said Brad Kinkelaar, executive vice president and portfolio manager at Pacific Investment Management Co. in Newport Beach, Calif., which oversees $1.97 trillion in assets.

Shares of telecommunication, utility and real-estate investment-trust companies have been hardest hit, said Mr. Kinkelaar, who manages two dividend strategy funds. “If rates continue to rise through 2014, albeit gradually, these stocks should continue to underperform the market.”

The yield on 10-year Treasuries will increase to 3.37% by the end of 2014, according to the median forecast of economists surveyed by Bloomberg.

(Bloomberg News)

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

Events

Dave O'Brien: Choosing the right tech for a growing practice

When your practice reaches a certain inflection point, technology becomes even more critical. What do you need to take you and your practice to the next level?

Latest news & opinion

10 fastest-growing IBDs

These independent broker-dealers saw the biggest percentage gains in their revenue in 2017.

The unique nature of working with celebrity clients

Athletes and entertainers are just like everyone else — aside from complex tax issues, a lack of financial savvy and a need for prenups

Top 10 IBDs ranked by revenue

These independent broker dealers generated the most revenues in 2017.

8 podcasts advisers listen to when they aren't working

Listening to podcasts for the fun of it.

UBS continues to cut loans to recruits, while increasing compensation to brokers

The wirehouse reduced recruitment loans 20% and increased bonus loans 68% in the first quarter.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print