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Dividend Stocks Are Like Bonds?

October 14, 2012 Leave a comment

For all the dividend investing fans out there, I read an interesting quote in a Steadyhand blog post, which says:

“Banks, utilities and REITs have done well, but will they continue to outperform more broadly diversified portfolios? […] interest rates are likely to trend higher, which means these rate-sensitive stocks will face a head wind for the first time in 31 years.”

If you think about it, this makes a lot of sense. A stock that has a steady dividend is probably in a boring, possibly capital-intensive industry. The business may require leverage just to get started, or as a way to make the profits more interesting. So it could be affected by interest rates, even to the point of overvaluation in a low-rate environment. And if there’s one thing we know about interest rates it’s that they have had a great 30 years and the party is just about over.

Does this mean dividend stocks are in for a beating? I don’t know, but it’s just another thing to consider if you prefer to go off the indexed trail!

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