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Low interest rates concept

News

Time to Pull out the Low Interest Rate Playbook & Buy Dividend Stocks

Aaron Levitt Mar 19, 2020


With the coronavirus pandemic potentially sending the world into recession, central banks have been pulling out all the stops in order to prevent a global collapse – this includes the Federal Reserve. In a move reminiscent of the 2008 Great Recession, Jerome Powell & Company held an emergency meeting last weekend and instantly cut rates down to zero. Just like during the recession, the idea is to push down borrowing costs for consumers and corporations; therefore, keeping the economy humming. But low and zero-rate interest policies (ZIRP) have another side effect.

That is, they boost asset prices, specifically dividend-paying stocks.

As bond yields decline, income seekers generally flock toward higher-paying dividend stocks to keep their “salaries” high. As a result, dividend stocks tend to outperform during low-rate periods. While the current carnage may not be a great buying time, the low-rate environment does set up an opportunity for dividend payers.

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