The stock market has rallied due to the prepared remarks of Dr. Janet Yellen, the nominee to replace Federal Reserve Chair Ben Bernanke.
The main reason for the bull market rally is that Yellen supports the continuation of Quantitative Easing III. That is the Federal Reserve program of expanding its balance sheet to acquire $85 billion monthly in Treasury securities and mortgage-backed bonds. The stock market considers that to be a pro-growth policy for the American economy.
It is looked up that way as it keeps interest rates low.
That is always bullish for the stock market. Overall, it makes stocks more attractive than bonds. The yields on debt instruments are simply too low to attract investor capital. It especially makes stocks that pay high dividends even more attractive.
Investors should expect Dividend Aristocrat stocks such as AT&T (NYSE: T), McDonald’s (NYSE: MCD), and Coca-Cola (NYSE: K) to do well. A Dividend Aristocrat is a publicly traded company that has raised its dividend annually for 25 consecutive years. Not only have AT&T, McDonald’s, and Coca-Cola done that, but each also pays an above market dividend yield.
There certain sectors known for paying high dividends.
As detailed on another article on this site, oil and natural gas firms have a history of paying high dividends. The same is true for utility stocks. Real estate investment trusts and business development companies are required by law to pay out most of their income in the form of dividends in order to qualify for tax breaks.
It appears as if Dr. Yellen will be good for the stock market as Federal Reserve chair. Much of the current rally has been liquidity induced. The chart below shows how the Dow Jones Industrial Average (NYSE: DIA) has soared for 2013. With Yellen as Chair of the Federal Reserve, it looks more promising for the rally to continue.