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Why dividend stocks suffer from higher interest rates
While the European Central Bank has kept rates low in Europe, over in the United States, rates have been steadily rising. Tim Strauts, Senior Market Research Analyst at Morningstar explains how Dividend Stocks actually suffer when rates are high.
Tim came to this conclusion by looking at the historical trends in the market stretching back to 1927. Morningstar grouped stocks into four categories: high paying dividend stocks (30 percent), mid-range dividend stocks (40 percent), low paying dividend stocks (30 percent), and non-paying dividend stocks. Each category was then charted against periods where interest rates either: fell, rose, or remained neutral.
Tim explains that the results were mixed, but mid-range and high paying dividend stocks appeared to be a “great investment for the long-term” according to Strauts.
When interest rates fell or remained neutral, mid-range and high paying dividend stocks outperformed all other categories. But during periods of rising interest rates however, these stocks were the worst performers with non-paying dividend stocks offering the best return.
01:21 minutes
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