Labor Market Woes Lead Dividend Stocks Higher as Interest Rates Lay Low

NEW YORK (TheStreet) -- Investors remain hot on dividend yielding stocks as the labor market news signals U.S. rates will stay low.

On Friday, Vanguard Dividend Appreciation ETF (VIG) spiked higher, just below its July peak, as the nonfarm payrolls report came in below expectations.

The ETF is most heavily weighted by Johnson & Johnson (JNJ) , International Business Machines  (IBM) , Coca-Cola (KO) , Exxon Mobil  (XOM) and PepsiCo  (PEP)

.

 

 
VIG Chart
VIG data by YCharts


The U.S. payrolls increased by only 142,000 last month after expanding by 212,000 in July, according to the Labor Department. Moreover, payrolls data for June and July were revised to show 28,000 fewer jobs created than was previously reported.

Investors had expected the labor market to keep pace, having become accustomed to monthly payroll additions of more than 200,000 jobs for much of the year. The culmination of lower jobs growth, negative revisions to previous months and a strong downtrend in labor force participation in August led many analysts to conclude the U.S. economy is not as healthy as was previously thought.

As weakness persists, iShares Barclays 20+ Year Treasury Bond (TLT)  maintains its uptrend, pushing long-term U.S. rates lower. The labor market remains a deciding factor over when and if the Federal Reserve will raise benchmark rates, while Friday's jobs report did nothing to make the case for tighter policy.

TLT Chart
TLT data by YCharts

In the environment of low rates across the globe, investors searching for income, as opposed to price appreciation in stocks, are forced into higher yielding bonds and dividend stocks.

Dividend stocks and Treasury bonds have maintained a strong correlation in 2014, with almost identical charts from January till present day, as seen below.

As the date of the Fed's initial increase in short-term rates continues to be pushed further out due to persistent weakness in the labor market, expect dividend stocks to remain in their upward trend.

TLT Chart
TLT data by YCharts

 

At the time of publication, the author held no positions in any of the stocks mentioned.

Follow @macroinsights

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.



More from Opinion

It's Just Not Smart For Investors to Ignore the Threat of a Trade War

It's Just Not Smart For Investors to Ignore the Threat of a Trade War

To Think a Trade War's Still Just a Threat Is the Dumbest Thing on Wall Street

To Think a Trade War's Still Just a Threat Is the Dumbest Thing on Wall Street

Flashback Friday in Politics: Trade Wars, Manafort, Immigration Dominate Minds

Flashback Friday in Politics: Trade Wars, Manafort, Immigration Dominate Minds

Microsoft and Sony's Rumored Game Console Plans Bode Well for AMD

Microsoft and Sony's Rumored Game Console Plans Bode Well for AMD

Apple Supplier Jabil Is Tumbling, But Its Sales Momentum Remains Strong

Apple Supplier Jabil Is Tumbling, But Its Sales Momentum Remains Strong