Interest rates are rising; right. Dividend stocks offer the best long-term returns; right. Investors are seeking yield; right. So right now dividend paying stocks look very good in relation to blue chip low yield bonds.
Fast forward when interest rates are say three percent higher on no risk treasuries. What can dividend yielding stocks offer in return? The blue chip performers will not change and if circumstances permit steadily increase their dividends rewarding shareholders. Second and third tier companies who offer attractive yields will be under pressure to risk adjust.
This of course will be their downfall. They second and third tier will not be able to sustain their dividend much less increase it. The buy and hold narrative for dividend yield investors will crumble and capital losses will occur.
Dividend investors need to scrutinize their yield stock and segregate for quality. Right now low-interest rates floated a lot of boats.
George Gutowski writes from a caveat emptor perspective. Follow him on Twitter @financialskepti