10 dividend stocks that could be slammed when the US Fed raises rates

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.

Foolish takeaway

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.

Discover the 'new breed' of blue chips that could take your portfolio higher in 2016

Forget Transurban and Woolworths. These 3 "new breed" top blue chips for 2016 pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

The report is free! No credit card required.

Motley Fool writer/analyst Mike King owns shares in Sydney Airport. You can follow Mike on Twitter @TMFKinga

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.