The near-zero interest rate environment of the last eight years has driven millions of income-seeking investors into stocks — particularly into those paying out decent dividends. Between the dividends and the rise in stock prices, the strategy has paid off handsomely, with total returns far exceeding the coupons on investment grade bonds.
With valuations near historical highs and interest rates rising in the U.S., however, the game has changed for investors in high-yield, dividend-paying stocks. They no longer have the wind at their backs.
"The competition for capital increases as interest rates go higher," said Greg Ghodsi, managing director of investments at 360 Wealth Management Group, a firm affiliated with Raymond James. "It will pull more money out of stocks and into bonds."