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What Rising Interest Rates May Mean for Utilities Stocks

Watch out, dividend stock investors−this might get ugly.

The following is an excerpt from the video series Dividend-Stock Deep Dive, hosted by Morningstar DividendInvestor editor David Harrell. Watch the full interview.  

Harrell: You mentioned interest rates earlier. So, I think it was on March 16 that the Fed announced a 25-basis-point increase in the federal-funds rate. I think that was the first rate increase we've seen in three years, but we also expect multiple rate increases throughout 2022. Now, in your report, you spoke about several things, one that higher interest rates can be a drag on utilities' earnings because it increases their borrowing costs, higher interest rates can also make the dividends--the yield of the utilities--less attractive to income-focused investors. On the flip side, if these rate increases have their intended effect and actually tame inflation, that's a positive for utilities. How do you see things shaking out over the next year with these increasing interest rates and the utilities sector?