Safe Havens No More: Dividend Stocks Face an Epic Reckoning

Since the financial meltdown of 2008, the Federal Reserve has kept rates near zero. That's about to change, compelling investors to flee the high-yield stocks that prosper when rates are low. The U.S. Labor Department on Friday reported that employers hired last month at a slower pace than estimated but not slowly enough to indicate the recovery is stalling. Traders concluded that conditions are ripe for the Fed to hike interest rates later this year, an expectation that's clobbering so-called safe havens. These high-income equities tend to fall when rates rise, as fixed-rate alternatives become more attractive. Last week, the iShares U.S. Utilities ETF (IDU) lost 3.88%, the iShares US Real Estate ETF (IYR) lost 5.07%, and the iShares US Telecommunications ETF (IYZ) lost 2.17%. By comparison, the S&P 500 (SPY) only lost 0.72%.

The traditional safe haven of gold is losing its luster as well, with the SPDR Gold Trust ETF (GLD) dropping 4.34% last week. Most analysts said they expect the Fed to raise rates in December, a likelihood that poses a major test for this aging, seven-year bull run in stocks. But higher rates would be a boon for beleaguered banks. Fact is, dumping inherently strong real estate, telecom and utility stocks would be foolhardy, because conditions remain treacherous and expectations could be thrown into a cocked hat. The upshot: Stick to quality and don't panic. If you own rock-solid stocks like Verizon and Dominion, hang on to them. As this year's crazy U.S. presidential race has amply shown, anything can happen.

Source: The Street

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