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Executive Summary

When Rates Rise It’s Time to Buy

By Roger S. Conrad on Oct. 9, 2018

The Dow Jones Utility Average has posted positive returns in 35 Octobers and 38 fourth quarters since 1969. This year, it will try to repeat that with the benchmark 10-year Treasury note yield (TNX) rising to its highest level in seven years.

Powerful DJUA returns in 2009 and 2013 against 70 percent plus increases in the TNX demonstrate dividend-paying stocks can make big money when rates rise. So does the DJUA’s 60 percent return during the previous Federal Reserve tightening cycle in 2004-06, and utilities’ nearly 70 percent since May 1, 2013, when the Fed declared the end of Quantitative Easing.

Rate fears, however, can be a near-term headwind. All too many investors still reflexively sell dividend-paying stocks when worried about rates. And the sheer size of dividend stock ETFs can accelerate action in a hurry.

That’s why, instead of betting on utilities as a sector, I advocate focusing on shares of high quality companies when they take a temporary spill.

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