The US Federal Reserve has indicated that higher interest rates are on the way – which could be a threat for a number of ASX-listed dividend stocks.
Earlier this week, Chairwoman Janet Yellen said that the strong economic data meant the central bank needed to raise rates to keep inflation under control.
If the bank raises rates, interest rates on a range of securities are likely to rise too, making debt more expensive. For companies with large debt balances, that creates two major problems. Firstly, interest expense increases, impacting on cash flows and net profit. And secondly, when it comes time to rollover debt or raise more debt, it is likely to come with higher interest rates, again impacting on the companies’ bottom lines.
All that means lower dividends and likely a rush for the exits by investors looking for income, which could see share prices sink.
These 10 companies could see their share prices and dividends sink…
|Company||Last Price||Yield||Net Debt|
|Sydney Airport Holdings Ltd (ASX: SYD)||$6.93||4.0%||$8,314.40|
|Transurban Group (ASX: TCL)||$11.28||4.0%||$12,447.00|
|Aurizon Holdings Ltd (ASX: AZJ)||$4.59||5.4%||$3,472.00|
|Telstra Corporation Ltd (ASX: TLS)||$5.10||6.1%||$14,340.00|
|DUET Group (ASX: DUE)||$2.50||7.2%||$6,052.70|
|Spark Infrastructure Group (ASX: SKI)||$2.34||5.7%||$1,014.00|
|APA Group (ASX: APA)||$8.65||4.8%||$9,906.90|
|Scentre Group (ASX: SCG)||$4.76||4.4%||$12,692.80|
|Vicinity Centres Re Ltd (ASX: VCX)||$3.19||5.5%||$4,264.10|
|AusNet Services (ASX: AST)||$1.64||5.2%||$6,642.70|
Source: S&P Global Market Intelligence
A mix of infrastructure, utilities companies and property trusts – all with current dividend yields of over 4%. As you can also see, all of these companies have substantial amounts of debt too. That doesn’t necessarily mean they will be exposed to higher US interest rates right away, but the effects are likely to flow through over time.
It’s an important point to remember for investors looking for yield. Don’t just look at the yield, as the share price fall could wipe out the yield in quick time – and more.
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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.