Many investors own high dividend-yielding stocks not only for the income that they produce but because of the presumed defensive characteristics of these stocks. It is widely believed that a high divided yield essentially “protects” a stock against general market declines. This has historically been true, for the most part, in terms of relative performance. Indeed, during the recent market decline, although high-dividend yielding stocks have declined in value substantially in absolute terms, they have still outperformed the general market (SPY) handily.
However, there is reason to believe that if the current correction turns into a more intense sell-off, that high dividend yielding stocks in such traditionally defensive sectors as MLPs, income trusts and income-oriented closed-end funds could face a devastating collapse. Examples of some vulnerable stocks might be EEP, KMP, PGH, ERF, FOF and ZTR.
Source: Seeking Alpha
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