Long bonds vs. dividend stocks for income investors

November 18, 20194 Comments

This summer, bonds were the way to go. The TLT, for example, rode a wave up as the Fed eased, while trade wars and Brexit pushed money into safe assets. We saw a bump in utilities, telecoms and other dividend payers too.

Now, we’re starting to see a reversal in some of this risk-off trade. Take a look at the US 20 year bond ETF TLT, below. Note that its peak did break the prior highs, but that break failed of late. This suggests a potential decline for the TLT into the $128-$132 zone. Note that I used the underscore for this chart to eliminate the dividend, which can distort an income based securities chart.

The Canadian Long Bond ETF XLB, again adjusted to eliminate dividends in the price- shows a different pattern than the US (TLT) counterpart. However, its not a heck of alot more bullish. XLB is struggling at a support level in the mid-$25 area. If it breaks, and it does appear to be doing so, we could see a substantial decline by the Canadian long bond ETF into the low $20’s.

 

 

While on the subject of Canada, we can see that Canadian dividend stocks, as illustrated by the iShares XEI dividend stock index, are right at the make-or-break resistance point. That’s perfectly fine, but it needs to be watched for a turndown. If it breaks down, then you are looking at a 10% or more downside. If it breaks out to the upside, it would be very bullish. Keep an eye on this one.

 

The US high dividend stocks, as illustrated by XHC (an ETF of currency hedged US dividend stocks trading in Canadian markets) is also at a potential inflection point

 

Conclusion

Bonds are becoming far more risky than they were a couple of months ago. However, dividend stocks on both sides of the border are looking ok – albeit at critical points of potential breakouts or turndowns. I’ll not stick my neck out and make any predictions here. However, I will be so bold and say that long bonds are likely presenting too much risk for the potential upside at this point. We’re sticking with shorter durations in our income platform.

 

Keith on Bloomberg/BNN MarketCall this Friday November 22nd at 12:00 noon

4 Comments

  • Hi Keith,

    How do you feel about IPL at this time as a dividend stock-I believe you were watching it a while back

    Rob

    Reply
    • Rob
      We own IPL in our aggressive model (not the more conservative Equity Platform)–there are risks to this name. It might get back to the $25 is area, but its not a sure bet.
      BTW–normally I prefer to only do individual stock comments on BNN, which is this Friday–I answered this because we hold it and I am familiar with the trading parameters. For expansion of that comment, call your question in during my show!

      Reply
  • Do you have any thoughts about Pring’s KST as a momentum indicator? Applying it to the XHD in your blog, it moves into a negative (sell?) position on November 19th. Full Stochastics has already gone negative and RSI is sitting just above the 50 line right now. My own research shows there a very few whipsaws with this indicator but it does need confirmation with price action and other indicators.
    Price is king but the chart shows a 52 week high was reached on November 7th but has dropped since. Is this a fake?

    Reply
    • Fred-as I dont use this indicator, I cant say that I’ve done enough research into its success as an indicator… but your observations on the XHD chart are correct in that its hitting resistance right now…

      Reply

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