Is the Dividend Trade Dead?

TL;DR

High dividend yield sectors like telecoms, MLPs, utilities, and REITs are underperforming due to potential Fed policy changes affecting bond yields.

Transcript

hi my name is Alex dor I'm a mly Fool contributor if you've been following the market recently you may have noticed that high dividend yield shares have performed poorly um we're going to look at a at a graph that shows the performance of four sectors that support above Market dividend yields relative to the S&P 500 beginning in uh the middle of th... Read More

Key Insights

• ✋ High dividend yield sectors like telecoms, MLPs, utilities, and REITs are currently underperforming compared to the S&P 500.
• 😄 The Fed's potential quantitative easing program changes could impact the attractiveness of income-producing shares.
• 👨‍💼 Investors should assess the business models of REIT sub-sectors like mortgage REITs for long-term investment decisions.
• ✋ Market shifts towards normalized bond yields may affect the appeal of high dividend yield sectors and require careful monitoring.

Questions & Answers

Q: Why are high dividend yield sectors performing poorly compared to the S&P 500?

High dividend yield sectors are struggling as potential Fed policy changes may lead to rising bond yields, making income-producing shares less appealing.

Q: How did the Fed's actions during the credit crisis impact income-seeking investors?

The Fed's measures like lowering short-term rates and buying bonds made cash and bonds less attractive, pushing investors towards high dividend yield sectors.

Q: Should investors hold onto shares in high dividend yield sectors?

Long-term investors with reasonably valued shares in these sectors can hold through the cycle, but should be aware of potential future market changes.

Q: Why should investors be cautious with mortgage REITs?

Mortgage REITs, which invest in mortgage securities with borrowed money, may lack competitive advantages and have not performed well recently, suggesting a need for cautious investment decisions.

Summary & Key Takeaways

• High dividend yield sectors are lagging behind the S&P 500 due to changing market conditions.

• The Fed's potential quantitative easing program changes could impact income-producing shares.

• Investors should be cautious with mortgage REITs as the business model may not be advantageous in the current market.