Tags: dividend | REIT | stocks | QE

Experts: Issuance of High-Dividend Stocks Set to Slow

Friday, 05 Jul 2013 08:28 AM

By Dan Weil

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The issuance of high-dividend stocks is poised to decelerate, as investors await a possible tapering of the Federal Reserve's quantitative easing (QE), experts say.

Investors lapped up those issues for most of the first half of the year, searching for yield in a low interest rate environment, The Wall Street Journal reports.

Companies, real estate investment trusts (REITs) and master limited partnerships with a dividend of at least 3 percent made up 26 percent of initial public offerings in the first six months of 2013, a bigger portion than for any full year since at least 2007, according to BMO Capital Markets.

Editor's Note:
How You Lost $85,000 During the Last Decade. See the Numbers.

But the environment changed after Federal Reserve Chairman Ben Bernanke's comments in May and June that the Fed may curb its QE soon.

In June, for example, Brookfield Renewable Energy Partners postponed a $288.5 million stock offering because of difficult market conditions, according to The Journal.

Stock issuance by high yielders is "not going to shut down, but I think it's going to slow down," Andy Tuthill, head of capital markets at JonesTrading Institutional Services, told the paper. "We may see less of that and more growth-oriented issuance."

However, interest rates are expected to remain low even if the Fed begins to taper its QE, The Journal noted.

"Even in the face of rising interest rates, yield equities continue to offer compelling total returns," said Michael Cippoletti, head of U.S. equity capital markets at BMO Capital Markets.

As for existing dividend stocks, Josh Peters, director of equity income strategies at Morningstar, finds REITs appealing.

As interest rates have risen, "REITs have gotten slammed, but the market is jumping out in front of that trend," he said on Morningstar.com. "I'm now looking at Realty Income, ... my favorite REIT ... with a yield well over 5 percent and [trading] below our fair value estimate."

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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