NEW YORK- Some investors are giving the shares of dividend-rich companies a second look as expectations grow that the Federal Reserve is nearing the end of a rate-hiking cycle that has lifted bond yields to their highest level in nearly two decades.
The Fed’s most aggressive rate increases in a generation have pushed short-term Treasury yields above 5 percent, their highest level since 2007, widening the options for income-seeking investors after a decade marked by historically low rates. That has helped pressure many of the market’s popular dividend-paying stocks, which investors had turned to when rates were far lower.
With markets betting the Fed is unlikely to raise rates much further, some investors say the shares of dividend payers are starting to look appealing again, as they look for opportunities for income if Treasury yields head lower.
“The 5 percent you’re getting from Treasuries looks to be transitory and that will take some pressure off of these sectors competing for yield,” said Jurrien Timmer, director of global macro at Fidelity Investments. “The dividend-paying value side of the market is a pretty compelling place to go to maintain that return.”
A nascent resurgence of interest in dividend-paying stocks can be seen in inflows to the $11.7 billion ProShares S&P 500 Dividend Aristocrats ETF which brought in $33 million in net inflows over the two weeks that ended July 19, its largest two-week gain since January, according to Lipper data.
The fund, which tracks companies that have increased dividends annually for the past 25 years, is up around 7.5 percent this year, compared with a nearly 19 percent gain for the S&P 500. – Reuters
