Is It Time To Buy Yield Rather Than Dividend Stocks?

It’s no secret that shares of companies that pay dividends underperform when interest rates rise. Investors usually shun dividend stocks as surging bond yields, via fixed ncome Treasuries for example, diminish the appeal of riskier assets such as equities. Put simply, higher interest rates make dividends less attractive, especially relative to a fixed-income alternative. Once yields rise to a certain level, stock investors become more attracted to low risk bond yields rather than higher volatility stock investments. That scenario can reduce returns from dividend stocks, even when the overall economy and company fundamentals remain strong.

Apple (NASDAQ:NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) are a great combo, providing exposure to new and old technology companies that both deliver steady, positive cash flows along with the strong potential for regular dividend hike payouts—all supported by robust underlying businesses. If you only look at their dividend yields, less than 2% each right now, you may not find them attractive compared to bond yields. But the main reason to invest in these tech giants is their low dividend payout ratios. These underscore both Apple's and Microsoft's ability to hand out much more cash to investors going forward.

Source: Investing.com

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