Plan ahead for possible dovishness
If interest rate cuts materialize, these high-yield dividend stocks should be on your radar.
With speculation about interest rate cuts seemingly reaching a fever pitch, it’s naturally time to consider high-yield dividend stocks. To be sure, this segment has lost some of its attractiveness over roughly the past two years as the Federal Reserve began earnestly hiking borrowing costs. But with that narrative possibly shifting, it may be time to pivot our portfolio as well.
While it’s not a perfect correlation – nothing ever is in the equities sector – higher borrowing costs tend to cloud passive-income providers, especially high-yield dividend stocks. Basically, when investors seek higher dividend rewards, they usually must absorb higher risks. However, if the yield on U.S. government bonds start rising, a competition effect occurs.
Basically, the government competes with the capital market and let’s face it: for stability, you can’t beat Uncle Sam. But if this narrative will fade due to interest rate cuts, then high-yield dividend stocks should regain relevance.
Of course, we just don’t know what will actually materialize. However, if you’re convinced about dovishness next year, these might be the high-yield dividend stocks that will benefit the most.
Comments
Post a Comment