The possibility of a US rate hike in December shouldn’t deter investors from investing in high-dividend paying US equities, according to State Street Global Advisors.
In a note to investors, State Street Global Advisors Australia head of SPDR ETFs Shaun Parkin said the probability of the US Federal Reserve announcing a 25 basis point increase to the fund rate in December was 70 per cent.
“Of all the different ‘types’ of stocks, those that traditionally pay high dividends are perhaps the most sensitive to changes in interest rates,” he said.
Despite this, Mr Parkin said, these equities still presented a good opportunity, even for income oriented investors.
“Even if US rates do go up, overall they will still be quite low. Compared to bonds, many US high dividend stocks still look attractive from a pure yield valuation perspective,” he said.
Outside the US, Mr Parkin said, the trend this year “has generally been one of monetary easing”, and bond yields in many districts still trade at negative yields.
“Despite a potential rise in US interest rates on the horizon, income orientated equity investors can still access a high level of income and return,” he said.
Mr Parkin described the need for income as a “secular trend”, and that there is “a compelling case for a global portfolio of relatively stable and defensive high dividend stocks”.
Economists agree that the Reserve Bank is likely to remain in inflation fighting mode until December. ...