Dividend Stocks, REITs And MLPs Will Fall If the Fed Raises Rates

The negative reaction of traders to the possibility of gradual, incremental increases in U.S. interest rates has more to do with the short term outlook that their job demands than any fundamental issue. Talk of a rate hike is only possible because the data suggests that economic recovery, while still bumpy in places, is continuing. That makes any pullback a buying opportunity for investors, but that doesn’t mean that care isn’t needed when selecting what to buy.

Any rise in interest rates will therefore put downward pressure on the price of anything that provides investors with an income, but rising rates will not have an equal effect on those stocks, especially over time. Higher interest rates generally come when at least some degree of inflationary pressure exists. In that scenario, most companies will see rising prices, and therefore income in dollar terms. That would allow them to increase the amount of any distributions, correcting the price drop. That is why, while buying any bond proxy now makes little sense, buying on any drop resulting from an actual announcement would be a decent strategy.

Source: NASDAQ

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