Dividend Stocks Not Handling Interest Rates As Well As Low/No Dividend Stocks

by: Richard Shaw

Dividend stocks are having a worse time with recent interest rate increases than other stocks. Fewer are above both the 50-day and 200-day averages, and more are under both their 50-day and 200-day averages than other stocks.

That does not mean they are down and out, but they are understandably more sensitive to interest rate increases, and are in worse technical condition than low-dividend and no-dividend stocks right now.

However, over time, Boards of Directors of better quality dividend stocks can and do decide periodically to increase dividend payments; and in the end dividend paying stocks have historically outperformed non-dividend paying stocks in the aggregate. We see no reason why that should not continue to be true in the long-run future.

In the meanwhile, here are the unpleasant facts about "dividend" stocks versus "low/no-dividend" stocks.

Figure 1: S&P 500 Stocks Above 50-Day And 200-Day Average By Yield

This table generally shows that a lower percentage of higher yielding S&P 500 stocks are above either their 50-day or 200-day average, and that at higher yields the percentage of stocks below both their 50-day and 200-day average is higher. Overall, in terms of moving averages, higher yielding stocks are in worse technical condition.

Figure 2: S&P 500 Stocks Above 50-Day Average By Sectors and Yield

We divided stocks into two groups; those that yield more than 2% ("dividend stocks") and those that yield less ("low/no-dividend stocks"), and then looked at them within the large-cap S&P 500 by sector. We also looked at equity REITs across all market-caps, as a special sub-sector of interest to us.

We chose 2% as the break point for dividend versus low/no-dividend stocks, because that is approximately the S&P 500 yield. Dividend stocks by this reasoning generally pay more than the broad index and low/no-dividend stocks generally pay less.

Among the 10 S&P 500 sectors, only 2 sectors showed a higher percentage of dividend stocks above their 50-day average than low/non-dividend stocks. They are Industrials and Basic Materials. Telecommunications has no stocks in the low/no- dividend category, but the percent of dividend stocks above the 50-day average is only 20%. Equity REITs also have zero low/no-dividend stocks, and almost none above their 50-day average.

VGT and VOX-OLD are not limited to the S&P 500 members, but may be the best proxies for their separate sectors. Among the SPDR sector ETFs, the XLK is the Technology security, but it covers both information technology as well as telecommunications.

Figure 3: S&P 500 Stocks Above 200-Day Average By Sectors and Yield

The same analysis of sectors around their 200-day average shows a pattern similar to the view around the 50-day average.

The Industrials above their 200-day average are about the same for dividend stocks and low/no-dividend stocks. Information Technology dividend stocks have a higher percentage above their 200-day average, and a bit more Basic Materials dividend stocks are above their 200-day average than low/no-dividend stocks. The Telecommunications sector again has so few stocks that statistics like these are not informative.

In all cases, other than Telecommunications and Utilities, the percentage of stocks above their 200-day average, whether dividend stocks or low/no-dividend stocks, is bullish (at least more than 1/2).

Overall, dividend stocks are handling interest rate increases less well than low/no-dividend stocks, but after the next few rounds of dividend increases the picture is likely to rebalance.

Securities In Table Images: XLY, XLP, XLE, XLF, XLV, XLI, VGT, XLB, VOX, XLU, SPY, VNQ

Disclosure: QVM has positions in SPY, XLY, XLI, and XLB in some accounts as of the creation date of this article (August 30, 2013). We certify that except as cited herein, this is our work product. We received no compensation or other inducement from any party to produce this article, but are compensated retroactively by Seeking Alpha based on readership of this specific article.

General Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.