Here’s why Telstra Corporation Ltd and the big banks have lost their appeal

Following months of strong returns, Australia’s highest yielding stocks have come under immense pressure in September which has resulted in a 4.4% setback for the benchmark S&P/ASX 200 (INDEXASX: XJO).

Since the beginning of the month, Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) have all tumbled 6%, while Westpac Banking Corp (ASX: WBC) has given up 7.5% of its value. The losses haven’t been restricted to the banking sector however, with Telstra Corporation Ltd (ASX: TLS) and Woolworths Limited (ASX: WOW) also down 2% and 4% respectively.

Have solid yields lost their appeal?

There are currently a number of forces at work which are acting as a downward pressure on Australia’s greatest dividend stocks, including a tumbling Aussie dollar and a strengthening US economy.

While we might consider Australia’s current 2.5% cash rate to be low, it is actually quite high compared to other nations. However, there has been much speculation recently that the US Federal Reserve could soon begin increasing interest rates. This has drawn many foreign investors back to the world’s largest economy.

This trend has been exacerbated by the lofty valuations of Australia’s blue-chips and the risks facing the Australian economy (e.g. the tumbling iron ore price).

What now?

With signs that interest rates around the globe could soon begin to rise, bond yields have also been rising which could see stock yields lose some of their appeal. As it stands, Bell Potter market strategist Charlie Aitken believes there could be a further 10% downside to pricey stocks like the big four banks and Telstra, which could mean we will be presented with greater opportunities to buy their shares at a much cheaper price in the near future.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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