Income Stocks and the Great Growth Surprise

Many investors have developed a Pavlovian response to sell dividend-paying stocks when worried about rising interest rates. So have algorithmic strategies governing passively managed money are likely set up the same way.

That means dividend-paying stocks too are likely to be volatile as the Federal Reserve raises rates. But consider this: Since World War II, there have been 10 tightening cycles, defined by the central bank raising its key Federal Funds rate at least twice in a row. The average duration of those tightening periods has been about 2 years and including dividends the Dow Jones Utility Average has had positive returns nine times.

The only exception came during the three years from July 1971 through July 1974, a period that included the Nixon shocks taking the US off the gold standard, the first Arab Oil Embargo, bouts of double-digit inflation and the first and only resignation of a US president. In short, it was one of the worst bear markets ever for US stocks and we’re no where near that point now.