Bondholders benefit from lower interest rates, but receiving stock dividends is even better.
Bonds will do well if U.S. interest rates decline in coming months. What you may not appreciate is that dividend-paying stocks are likely to do even better.
“ During declining-rate months, dividend stocks on average did more than twice as well as 10-year Treasurys. ” The comparable returns for 10-year Treasurys, in contrast, are 9.4% and 0.4%, respectively. So during declining-rate months, dividend stocks on average did more than twice as well as 10-year Treasurys.
The key to dividend stocks’ bond-like quality is that their dividends aren’t slashed when interest rates decline. That’s not always the case with lower-quality stocks, whose high yields often indicate an imminent dividend cut. But financially sound blue-chip companies are loathe to cut their dividends, often going to great lengths — including going into debt — to avoid doing so.
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