With uncertain market conditions, income investors can look to dividend investing as a strategy for different market conditions. This week’s news also looks at how income investors can deal with increasing interest rates.
The New Rate Regime: Managing Income and Volatility (Pensions & Investments, July 27)
Both fixed-income and equity investors face a challenge as interest rates begin to increase. “With bond yields still low, small rate changes result in large volatility, and a modest uptick in yields would produce negative returns,” according to the author. Fixed-income investors need to look beyond interest rates/duration and consider credit quality, currency exposure, and inflation strategies. For equity investors who rely on dividends, investors “need to identify companies that can initiate and/or grow dividends and pay attention to factors that are harbingers of potential dividend reductions.”
The Myths About Dividend Investing (Forbes, July 19)
With historically low interest rates, a lot of conversations are focused on the benefits of dividend investing. The author looks at some of these common myths and what investors might have overlooked. “Dividend-focused investing is less tax efficient than total-return investing, has historically produced lower total returns than a broad value-oriented portfolio, leads to greater concentration, and has historically lead to greater risk.”
