(New York)
High dividend yields are almost always a welcome feature for investors. For retirees, they are often an economic lifeline as they help cover everyday expenses. But rising rates pose a risk for such stocks as their value tends to suffer as fixed income becomes more attractive. One way to combat that is with stocks with quick dividend growth. Two such examples are pipeline giants Williams Company (4.8%) and ONEOK (5%). Both have dividend rates double that of the average S&P 500 stock, but they are also expected to grow those dividends (and their cash flow) at double digit annual rates. The two companies expect to grow their dividends by 12.5% and 10% respectively (from already high levels).

FINSUM: Given how high these dividends are already, the growth rate on them should be enough to offset any rate rise-related losses.

(New York)

Rising rates are definitively upon us. The Fed is poised to hike very soon and is likely to do so again before the end of the year. Some popular sectors, especially those with good dividends—REITs, utilities, telecoms—can suffer badly in rising rate periods. Luckily there are several ETFs that can help advisors hedge their exposure. The most common rate hedged ETFs are bond-based and use a strategy of buying higher-yielding corporate bonds and hedging their rate risk by short-selling Treasuries. The strategy seems to work well. For instance, the iShares Interest Rate Hedged Corporate Bond ETF (LQDH) gained about 11% between the 10-year Treasury’s low in July 2016 to now, while its unhedged cousin, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) lost 0.45%.

FINSUM: That is quite a margin between the two funds, which is a testament to how well the strategy performs in rising rate periods. There are several similar funds out there, and they seem like a good idea right now.

(Washington)

Advisors, don’t hold your breath. Despite widespread criticism from basically every side of the equation, it appears unlikely the SEC is going to do much to correct the major flaws in its current Best Interest Rule. Barbara Roper of the CFA, says that she is “not at all confident” the SEC will make any meaningful changes to the rule “to better protect investors”, pointing out that the SEC had every chance to improve on the DOL rule, but didn’t. “It’s hard to believe that they are going to have a sudden conversion and fix the problems now”, she says.

FINSUM: Brokers, consumer protection groups, and clients all hate this rule (and don’t understand it), and it doesn’t make sense to anybody. Hopefully Roper is wrong and they will change the rule, but we worry they may not.

(New York)

The market has been doing well lately and movements have been relatively calm. That may all be set to change, however, as a big driver of volatility is set to emerge. That driver is the so-called “blackout” period. The blackout refers to the month before earnings releases where companies are barred from repurchasing their own shares. Company buybacks have been a major tailwind for markets this year, with almost $400 bn of buybacks happening in the first half alone, up almost 50% from the prior year. Volatility has been historically higher in blackout periods.

FINSUM: So we are of two minds on this. On the one hand, blackout periods happen very frequently, so why would this one be special? On the other hand, there could be a lot of political and geopolitical (i.e. trade wars) turbulence in the next month, which means this particular period could prove very volatile.

(Beijing)

President Trump has just ordered $200 bn of further tariffs to be applied to Chinese goods. The Chinese have responded strongly, vowing to retaliate to the measures. The Chinese government said “We have been stressing that talks need to happen on the basis of parity, equality and good faith … What the US has done shows no sincerity and good faith at all”. The Chinese says they will impose tariffs on $110 bn of US goods, or about 85% of all US imports to the country.

FINSUM: These tariffs come just before the US and China were set to hold another round of trade talks. We have no idea how those are progressing, but this is really going to anger the Chinese.

(New York)
There has been a lot of doom and gloom about the risks of an inverted yield curve lately. An inverted curve is often seen as the best and most reliable indicator of recession, as it has accurately preceded the last several US recessions. Some are saying this time may be different as market conditions and central bank created stimulus have warped markets. Well, despite the fact that many hate the “this time will be different” mantra, it may actually be true in this case. In particular, the inverted yield curve has only been reliable in the US, whereas in Japan and the UK it is not a good indicator. This means the indicator is by no means universal, and gives weight to the idea that an inversion does not necessarily mean a recession is coming.

FINSUM: The Japanese example is particularly interesting to us as the BOJ has long had extraordinarily accommodative monetary policy. In that sense it may be the best case study for how an inversion could play out this time.

(New York)

Rising rates are upon us. The economy is red hot and a Fed rate hike is imminent, with another likely coming in December. This puts many sectors and stocks at risk. So what are the best sectors and ETFs to invest in right now? Three sectors that stand to benefit are financials, technology, and consumer discretionary, so buying stocks and ETFs there appears a good bet. For technology, Invesco has a momentum focused fund for tech leaders called the DWA Technology Momentum ETF (PTF) which seems interesting. In consumer discretionary, the SPDR Consumer Discretionary Select Sector Fund (XLY) gives good coverage.

FINSUM: All of these bets are cyclical (meaning the sectors benefit because the economy is strengthening when rates rise, which boost consumer spending). Banks are a little bit more compelling to us though, as they benefit from an improved economy, but they also directly gain from rising rates through a better net interest margin.

(New York)

REITs are a tough area to invest in right now. On the one hand they look vulnerable because of the rising rate environment, but they have also surged recently at the same time as offering enticing dividends for investors. The answer, then, may be to find undervalued REITs, and Barron’s has put out an article helping to do just that. Here are some REITs the publication highlights: Invitation Homes, Front Yard Residential, Digital Realty Trust, InterXion Holding, LaSalle Hotel Properties, and Extended Stay America.

FINSUM: REITs tend to have very good dividends, but tend to suffer during periods of rising rates because of this. They seem like a good source of income right now, but need to be chosen very carefully.

(Washington)

One moment it seems like détente, the next, all out economic war. Well, the latter seems to be stealing the stage this week, as the US and China are trading barbs over trade. The Trump administration is set to impose a fresh round of tariffs on $200 bn of Chinese goods. The new tariffs come just as the US and China were planning to have a fresh round of negotiations on trade. However, China make be backing away from such talks, as a senior Chinese official recently said “China is not going to negotiate with a gun pointed to its head”.

FINSUM: There is so much back and forth and “noise” in this trade battle with China that it is very hard to get a fix on what is actually happening.

(New York)

Sometimes balancing good dividends with strong growth is hard. The best dividends tend to come from mature and stable companies, but they often don’t have the best growth prospects. This is usually fine, but it does make them vulnerable in rising rate periods. According, here are ten stocks with strong dividends and good growth potential: SAP, Motorola, NetApp, Logitech, Garmin, Verizon, AT&T, Vodafone, Centurylink, and Consolidated Communications.

FINSUM: This list is very tech and telecoms heavy, but that seems a good balance if you are looing for both growth and strong dividends.