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

INTV

Advisers beware: tax law has unintended consequences

Commission accounts could be preferable for some clients, and advisers could be incentivized to move from employee broker-dealers to independent channels.

Recommended Video

Path to growth

Latest news & opinion

Cutting through the red tape of adviser regulation is tricky

Don't expect a simple rollback of rules under the Trump administration in 2018 — instead, regulators are on pace to bolster financial adviser oversight.

Bond investors have more to worry about than a government shutdown

Inflation worries, international rates pushing Treasuries yields higher.

State measures to prevent elder financial abuse gaining steam

A growing number of states are looking to pass rules preventing exploitation of seniors.

Morgan Stanley reports a loss of advisers after exiting the protocol for broker recruiting

The firm said it lost 47 brokers in the fourth quarter, the most in any quarter of 2017.

Morgan Stanley's wealth management fees climb to all-time high

Improvement reflect firm's shift of more clients into fee-based accounts priced on asset levels, which boosts results as markets rise.

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