Stock Market Rally Squeezes Income Investors

Over the past five years developed market stocks have risen significantly in value. How has this rally affected income seekers and is it still worth buying in to these markets?

Emma Wall 01 August, 2014 | 15:42
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Income investing has become ever more pressured. Central banks have kept developed market interest rates at record lows, causing bond yields to fall and income seeking investors to move up the yield curve to beat inflation. But even high yield bonds are now no longer living up to their name thanks to considerable inflows.

Yield hunters looking for 4% plus have no choice but to turn to equities, which present their own concerns. Before the credit crisis, there was a large variety of shares rewarding investors with supposed-excess cash. Once the global recession hit, banks all but disappeared from the dividend game across the UK, US and Europe and overleveraged businesses were forced to use cash previously distributed in dividends to sort out their book.

As stock markets have rallied, the dividend market has improved, but equity income investors now face a different challenge – one of valuations. Thanks to the considerable bull run, the S&P 500 is now yielding less than 2%, great for those investors who got in early and have benefited from the total return, not so attractive for income seekers looking for fresh opportunities.

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Emma Wall  Emma Wall is Editor for

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