Dividend Stocks Court Rate Risk
High-dividend-paying stocks tend to be more sensitive to interest rates than their lower-yielding counterparts, but not for the reason you might think.
Rising interest rates can clearly hurt investment returns. As rates rise, the expected returns for all securities must increase to stay competitive, which often requires prices to fall.
While it is more difficult to estimate the interest-rate sensitivity for stocks than bonds because their cash flows aren't fixed, some stocks clearly have greater interest-rate risk than others. For example, high-dividend-paying stocks have tended to be more sensitive to interest-rate fluctuations than their lower-yielding counterparts.
Alex Bryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.