- Higher interest rates will increase required returns while higher debt costs will lower available cash for dividends.
- However, things vary extremely among sectors so check your portfolio stock by stock.
- The current 5% shareholder yield is unsustainable with aggregate earnings yielding 3.93%.
Things are changing!
We have been enjoying a period where yielders were in high demand as interest rates declined. However, there are two things that will have a severe impact on dividends and asset prices. The first is that low interest rates enabled companies to take on more debt and increase their return to shareholders while keeping their interest expenses low. The second is that with the Fed about to increase interest rates and the yield on the 10-year treasury note up 75% from its July low, the value of your dividend yielders is also about to collapse because stocks simply carry more risk than treasuries. More →