In some ways, 2015 was a tough year for income stock investors. Stock price volatility and a smattering of dividend rate reductions made investors reconsider their investment strategies and holdings. In 2016, It looks like the tide will turn and a high-yield, dividend-focused investment strategy could put investors ahead of most over stock market strategies.
In 2015, the energy and commodities sector suffered through a steep decline as crude oil and natural gas prices suffered heavy declines. The result was falling share prices for almost every energy related stock, including those companies that provide infrastructure services that are not tied to the prices of oil or gas. The exploration and production companies, those that actually drill, pump and sell energy products, have really hit hard times.
Dividends from E&P companies have been slashed, often to zero, from high rates when oil was trading at $100 per barrel. Infrastructure energy companies have maintained dividend rates with many sticking to or slightly reducing dividend growth plans. The market has ignored the fact that these are still quality income payers. As a result share prices are down a lot and yields are at very high historical levels.
The expectations and fears of rising interest rates is another factor that led to a rough ride for income-focused stock market investors in 2015. The equity (property owners) real estate investment trust (REIT) share values peaked in late January and slowly eroded for the rest of the year. The even more interest rate sensitive finance REITs had a sector value peak in November 2014 with a steeper decline in share values over the last year.
There are many reasons why stock market investors think higher interest rates are a negative for higher-yield stocks. Most of those reasons are not valid, but the fears will produce selling pressure and temporary declines in the share prices of companies operating in these economic sectors.
The overall stock market was also volatile in 2015, with record highs early in the year, an overdue correction in the fall and a close of the year with the stock market averages pretty much where they started out the year. As I write this on the day after Christmas, the S&P 500 has produced a 0.10% year-to-date price return and 2.2% total return with dividends included.
