Valuation Pressure
Rising interest rates can compress the price-to-earnings (P/E) ratios of dividend homeontheweb.org stocks, particularly those viewed as bond substitutes.
This compression can lead to lower stock prices even if the underlying fundamentals of the company remain strong.
- Example: During periods of rising rates, high-dividend sectors like utilities and consumer staples may see a reduction in their P/E ratios, resulting in price declines.
Limited Flexibility
Dividend payments can limit a company’s financial flexibility.