Sensitivity to Interest Rates
Dividend stocks can be sensitive to changes in interest rates, affecting their homeontheweb.org attractiveness and valuation.
Rising Interest Rates
When interest rates rise, fixed-income investments such as bonds become more attractive relative to dividend stocks.
This shift can lead to a decrease in demand for dividend stocks, resulting in price declines.
Additionally, higher interest rates increase borrowing costs for companies, which can impact their profitability and ability to pay dividends.
- Example: Utilities and REITs often experience price declines in a rising interest rate environment as their high dividend yields become less competitive compared to new bonds with higher yields.