Dividends4Life: Why Do Dividend Stocks Sometimes Behave Like Bonds?

Dividend stocks have some bond-like characteristics. Firstly, since dividend stocks tend to be defensive in nature, they give you a cushion during risk-off scenarios while underperforming during risk-on scenarios. Secondly, they offer regular income in the form of dividends or coupons.

The S&P 500 (SPY)(IVV) has a correlation of +0.11 with bonds. The utility sector has a higher correlation of +0.28. The telecom and consumer staples sectors have respective correlations of +0.21 and +0.17 with AGG, which are higher than the correlation between AGG and SPY. So, as interest rates rise, dividend stocks are likely to underperform the S&P 500 along with bonds.

Source: Market Realist

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