As interest rates have remained low, in many cases actually negative, a common theme has emerged amongst investors. The idea has been to use dividend paying companies to supplement income that was once provided by bonds. This has been a very profitable trade as high dividend, interest rate sensitive sectors like utilities, telecoms, and REITs have been the darlings of the market over the last few years. It is very difficult to argue the rationality because these companies are attractive for several reasons:
· They are less economically sensitive
· Have lower volatility in earnings and cash flows
· Cash flows are consistent and more predictable
· Have long histories of increasing dividends
Every hot investment theme, even when it is sound and logical, eventually runs its course and gets too far ahead of itself. While not every investment has the same arc from boom to bust, there are similarities…