Rate hikes aren’t necessarily bad for DIVIDEND PAYING stocks: The Fed is set to hike interest rates in 2022. Here’s what that means for stocks – December 1, 2021,
In fairness to the reader, not all Dividend-paying stocks are made equal, some dividend-paying stocks, pay you a dividend because otherwise, their stocks would be worthless, during a rate hike environment some of these stocks will be unable to raise their dividend because they servicing their current dividends is a strain on their balance sheets.
However, there are a lot of dividend-paying stocks that merely pay the market price of their dividend and pass the costs over to their customers. As an example, I’m both an investor and consumer of Enbridge, which is a Natural gas distribution company, I pay and I’m paid, now in the modern era until either the government bans Enbridge out of existence or some new “Cold Fusion” type of energy replaces natural gas, I see a lot of upside potential for Enbridge.
Now, nothing is perfect Enbridge could stop paying a dividend or be forced to stop paying a dividend, I don’t know, but their business model is great. If you’re asleep at the wheel, the main reason why interest rates are at zero is because of government spending, any misallocations of resources that exist in the private sector today are easily correctable, what’s not an easy fix is government spending.
Governments lie to people for votes and some of those lies like welfare spending will have to disappear or cause hyperinflation if the government’s cost to borrow goes up. Now, who can blame a real estate investor who takes advantage of the predicament the government finds itself in, but dividend investors have been taking advantage of this for years now, yes dividends often pay less than 5% and the gains are taxed, but you’re also in a much better position if have cash on hand to benefit in the event of a correction.
Most dividend investors aren’t in debt when you’re investing for cash flow and the only thing you have to worry about is the taxman, you sleep better at nights. Whereas people in debt playing these debt arbitrage games, often become suicidal when it comes to their attention that the rules of money have changed.
Regarding the Federal Reserve hiking rates, who knows, who cares, regulations are creating rampant inflation which is leading to shortages, meaning that if you’re in debt, that debt is going to get a whole more expensive, adding to this pending doom is lack of appetite for austerity measures, this more than anything explains the reality that inflation more than likely will run hot for many years unless there’s a crash and interest rates are forced to be normalized.
As a Dividend investor, imagining a day when prices can come down would be wonderful, but the truth is that it’s unlikely at this moment and it’s for this reason that the income you make from dividends should be invested wisely, to purchase more potential cash flowing assets. For as long as the government is able to pull off these zero interest rate scams, a misallocation of resources will continue, but, you have to also anticipate that cash will be flowing into areas of the economy in which people need to survive.
Even though I believe real estate is over-valued, I still buy Real Estate Investment Trust(REITs), raising interest rates a few basis points means nothing, until we’re talking about normalizing interest rates for the foreseeable future even if things get ugly, I’ll take my chances, now for the purposes of transparency all of my money isn’t tied up in REITs but I hope you get the point I’m trying to make here.
Do not confuse an interest rate hike with the normalization of interest rates, this is not a free market, it’s a controlled market that’s trying to achieve results favorable to the politicians in power. I expect rampant inflation to continue and shortages to become normalized, based on history, shortage problems can only be fixed by shrinking government.
Western governments have created this “Universal Basic Income” environment in which a lot of people are finding benefit in being unproductive. This problem is solved by NORMALIZING interest rates which will force the government to shrink. If you’re saying to yourself we’re not there yet, I 100% agree with you! So raising interest rates in a controlled central bank environment might actually lead to more consumer price inflation and an acceleration of economic deflation, which equates to a huge benefit for people NOT in debt receiving cash flow payments.
Yes, the upper and top tier debt investors will benefit as well, but as we know that’s a small minority. In Toronto, as an example, a lot of real estates investors are already losing money and being forced to slash their rent prices, because sure real estate prices are going up, but rental prices are unaffordable, meaning the pool of renters who can afford to pay an investors mortgage bills and other expenses is shrinking, meaning that for a lot of debt investors, the investing ONLY for capital gains.
How long can this last, before a collapse occurs? I don’t know, real estate has been rather resilient, this is why I do keep some money in CASH FLOWING REITs. Bankruptcies in the private sector are usually restructuring agreements, it’s the public sector that has the problems because if the public sector is unwilling to cut staff which also means cutting regulations, this rampant inflation problem isn’t going to stop!
Interesting times ahead