Dividends4Life: Time To Sell Your Dividend Stocks? Not So Fast

Time To Sell Your Dividend Stocks? Not So Fast

Posted by D4L | Saturday, April 26, 2014 | | 0 comments »

Some advisers, brokers and investment writers are saying the conditions are ripe for a rotation out of dividend stocks, the argument being that the anticipated rise in interest rates is making the landscape dangerous for the time being. When rates were close to zero, bonds paid almost nothing, while dividend stocks enjoyed a run-up in the market and better yields. There are sound arguments for considering reallocating your portfolio, including this one from Lighthouse Capital LLC founder Aaron Katsman, but the decision needs to be based on your investment objectives, not only on market timing.

All things being equal, the price of an income-producing investment goes down as interest rates rise. That is especially true for bonds, since market prices must automatically adjust so that existing bonds’ yields will match the coupon rates of newly issued bonds. But this may not matter if you are holding individual bonds bought at face value (or par value) or below, because you won’t realize any losses if you hold the bonds to maturity. However, if you are holding shares of bond mutual funds or exchange traded funds, you may not be able to avoid losses.

Source: Market Watch

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