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

dividends, stocks, equities, markets,
+ Zoom
(Bloomberg News)

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

Featured video

INTV

Ed Slott: Tax strategies to help clients take advantage of market declines

When the markets decline or are volatile, it is an opportunity to put a few retirement savings strategies to work, according to Ed Slott, founder of Ed Slott's Elite IRA Advisor Group.

Latest news & opinion

Alternative strategies boomed after crisis, but haven't been tested

Because the S&P 500 has outperformed, convincing clients they need protection is a hard sell.

7 ways advisers fixed clients' biggest financial dilemmas

Sometimes it takes creativity, along with knowledge and outside help, to get a client out of a jam.

LPL Financial buys NPH, a broker-dealer network with 3,200 advisers

The deal, part of which is based on the advisers and revenue that eventually will move from NPH, could potentially cost LPL $448 million.

3 things advisers should make sure their clients' children take to college

Advisers can help clients avoid scary and painful situations with kids age 18 and older.

Private equity investors zero in on the RIA business

P-E proves to be ready and willing to invest in RIAs, but many will be looking to sell in three to seven years.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print