In recent years, dividend stocks have been the go-to alternative for yield-starved investors as bond market yields plunged toward record lows. However, if yields push higher, the hunt for stable and regular payouts may subside, which may diminish demand for dividend paying stocks.
Concerns over dividend stocks are now growing after the recent uptick in bond yields and rising expectations for a Federal Reserve interest rate hike in response to a slowly improving U.S. economy and higher inflation. Yields on 10-year Treasury notes have increased to about 1.8% since the 1.36% low back in July.
While company dividends won’t dry up any time soon, investors are beginning to pare down demand for dividend-paying stocks.
For full disclosure: Tom Lydon’s clients own shares of SDY.
SPDR S&P Dividend ETF