Dividend Stocks Are Appealing Again, But Beware

This is what was supposed to have happened: A recovery in global markets, led by the United States, would finally push up interest rates. Bond yields and rates on money-market funds and bank deposits would rise, making them more appealing to income-oriented investors. In turn, dividend-paying stocks would lose appeal, because the downside risk of equities couldn’t justify their single-digit yields. Maybe it’ll still happen in 2015, as was widely thought. But it sure didn’t start this week.

Instead, all the relevant markets reversed course. Equities sold off and interest rates fell as bond prices rose. And, as a result, there was a sharp increase in the number of stocks, in Canada and particularly in the U.S., with dividend yields that beat 10-year government bonds. Many investors will look back on this week and see a bloodbath. Some, who feel this is a blip, rather than a first step to a market collapse, will see it as a chance to buy.

Source: Globe and Mail

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