One side effect of rising interest rates is the recent slide in high-yielding dividend stocks. The market is pummeling some widely held names, causing their yields to climb.
Here are the yields on a handful of widely held S&P 500 stocks as of the Sept. 26 close:
Pioneer Natural Resources (PXD) , 12.38%
Vornado Realty Trust (VNO) , 9.09%
Altria (MO) , 9.07%
Devon Energy (DVN) , 8.45%
Simon Property Group (SPG) , 8.01%
AT&T (T) , 7.08%
Kinder Morgan (KMI) , 6.9%
Verizon (VZ) , 6.7%
The problem faced by these names is they are in direct competition with U.S. Treasuries. Unlike stocks and other high-yield investment vehicles, Treasuries offer a guaranteed yield. As of the Sep. 26 close:
U.S. 2-year Treasury 4.32%
U.S. 5-year Treasury 4.16%
U.S. 10-year Treasury 3.89%
Compare that to an investment in AT&T. Right now, the stock’s yield is 7.08%, but is that dividend safe? There are no guarantees, but it’s unlikely that AT&T would cut its dividend twice in one year. Earlier this year, the telecommunications giant reduced its payout when it announced a spinoff of Warner Media.
According to CEO John Stankey, the move would result in an influx of cash that would bolster the company’s earnings. That hasn’t happened yet and the stock has lost more than 18% year to date. On Monday, AT&T reached its lowest point in 19 years.
Nevertheless, there may be a ray of hope for AT&T and other dividend stocks. Coinciding with the stock’s decline, AT&T’s RSI (relative strength index) indicator has reached extremely oversold levels (arrow).
On the RSI scale, any reading below 30 is an oversold indication. AT&T’s RSI reading is below 20. This is rare for a so-called blue-chip stock and indicates an extremely oversold condition.
Source of charts: TradeStation
Simon Property Group is nearly in the same situation, with an RSI reading of 21.89. Simon reached an 18-month low on Monday.
With one exception (Altria), all the names listed above are currently oversold. According to RSI, AT&T and Simon Property Group are oversold to the greatest degree.
I’m not tempted to buy Simon due to the sad state of shopping malls. When I think of what might happen to malls if we go into a “worldwide recession,” as FedEx FDX CEO Raj Subramaniam predicted on Sept. 15, I see Simon falling back to its pandemic lows. That would place Simon just below $50.
AT&T is a different story. The stock trades just above $14.23, the lowest price printed by AT&T this century. With the stock now deeply oversold, I’m willing to buy it for a trade.
As with any long position in the current environment, I’ll open small and build if it moves in my favor. If it moves against me, I’ll quickly head for the exit.