No. of Recommendations: 1
Utilities are paying nice dividends right now, and so are preferred stocks.

I question whether they contain a danger similar to bond funds: If interest rates go up, the stocks (my principle) will go down.


There are actually at least three possible risks as interest rates rise;

1) Like you mentioned, if a stock is paying a dollar a year in dividends, then it will look less favorable as interest rates go up.

2) If the company has a lot of debt, then eventually their borrowing costs will go up as interest rates increase so their financial numbers may suffer.

3) If inflation is part of the reason for the interest rates going up, then the dividend will be devalued unless it increases too. For example if a company pays a steady $1.00 dividend, and inflation is 5%, then next year the dividend would need to be $1.05 just to stay the same in inflation adjusted numbers.

Greg
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.