I’m still learning, but I just finished listening to Bloomberg radio and heard about their concerns over rising interest rates and the effect on yield stocks. What exactly is the connection? Why do yield stock lose their appeal with rising interest rates?
David Linnell: Because if bonds pay the same or more people move to them from dividend payers and vice versa. https://www.schwab.com/…/should-you-pick-dividend…
Diversification: Investing in Bonds vs. High-Dividend Stocks
Darren Yoelin: Because as rates rise, investors can get a better return by taking on less risk. So the price of dividend paying stocks will generally drop so the yields remain competitive.
David Linnell: https://www.wsj.com/…/rising-bond-yields-punish-high…
Rising Bond Yields Punish High-Dividend Stocks
AJ Singh: Good question. A very similar question was asked on a post by Amanda this morning that also had some good explanations.
Dave Sieling: If treasuries hit 3%, that return starts to look reasonable and stable in a long bull market. Maybe people just take profits and put it in treasuries. I’m long equities.
John Marshall: The yield on the 10 year Treasury is considered the risk free rate of return. If you can get 3% risk free, why buy a utility yielding 2%, and rates are expected to rise. Don’t add to utilities and REITS during rising interest rate environments. Banks historically do well with rising interest rates because a lot of loans and credit cards have variable rates. When rates go up, you pay more, and banks earn more.
John Marshall: https://www.investopedia.com/…/these-sectors-benefit…
These Sectors Benefit From Rising Interest Rates
Kelvin Chalkley: The new tax law didn’t really help REIT’s either like it did other companies.
John Marshall: Kelvin Chalkley I’ve read that the new law helps a little, but I’m not a tax expert. https://www.google.com/…/tax-plan-is-good-news-for-reit…
Tax Plan Is Good News for REIT Investors
Kelvin Chalkley: That is more for the people who invest in REIT’s and how the dividends are taxed. Not so much about the REIT company itself…
Diego Ochoa: Thank you all for the answers and especially the articles. I have some reading to do 🤓
David Iarocci: Yes they absolutely do.
Vusi Nqai: .I think most concern investors is debt traders in such situation