 Good day, fellow investors. I get a lot of comments about what's going on with these dividend stocks, are tobacco companies now a buy and what's going on with those stable cash cows that pay nice dividends because stock price is going down and you need to cover with a lot of dividends those big stock declines. Let's discuss what's going on, what can happen to dividend investments, dividend stocks and what might be the best strategy after all. So I'll discuss the iShares core high dividend ETF that has Exxon, AT&T, Verizon, Chevron and J&J as top positions with a weight of 34%. The fund is well diversified, a bit overweight energy, but that is exactly where the largest dividends are. As you can see here 21% almost in energy. The management fee is practically nothing at 0.08% and the dividend yield is 3.62% which is much higher than the SAP 500 dividend of 1.84%. Now the performance of the ETF has been nothing short of stellar since the inception and $50 invested in 2011 would now be $85 not counting the dividend over time. However, the situation hasn't been that positive over the last six months and the ETF is down almost 10% since the peak on January 26th. Now the question is whether the index, the ETF or dividend related investments can fall another 10% in the next I don't know six months because a 10% fall is almost three years of dividends at the 3.6 interest rate. So that's a big gap to lose and perhaps some people think okay should I wait with purchasing dividend stocks or should I simply continue do what I do. The main trigger for the declining dividend related funds are interest rates. Dividend funds are beloved for their stability and certainty. However, there is something more stable and safer than dividend ETFs. US treasuries in the last six months have seen a spike from 2.3% to the current 3.06% and with treasuries you have a guaranteed principal return after the treasury bond expires. That's something you don't have with dividend investments. That's the key. Treasure is at 3.06, dividend ETF at 3.6, dividend ETF very risky. I'll show later what can happen. Treasury practically no risk over the long term. And this is a stock that has been a famous dividend payer and you can see what can happen to such a stock. General Electric is down 50% over the year and there is still trouble ahead as it seems. A little bit recovered but then dropped again. Now what's the risk? If the Fed continues to increase interest rates the yield of the safe heaven treasuries will also increase and consequently investors will require a higher yield from dividend investments. If the required dividend yield goes to 5% you can expect the dividend ETF to decline to a price of 61.2 from the current 85 and that decline of $24 implies eight years of dividends which is a lot to risk for a premium of just 55 basis points, 0.55 of a percentage point, 3.6 to 3.06 above the 10-year treasury. The Fed's meeting minutes released on Wednesday have shown that there is even a possibility for four rate hikes this year. The current rate is 1.75 which means that we could see also 2.5 by the end of the year and consequently the 10-year treasury at around 3.75. In the figure here you can see how the effective federal funds rate has been pushing the Treasury yield higher. So if that happens I would not be surprised to see those dividend yields higher and the principles that you own drop, DTF drop from 85 to 60. That's something inevitable and that's the biggest risk with dividend investing. However if you are an ultimate dividend investor then you are happy when prices drop because you can reinvest the dividend over time. Dividend investing is more a strategy. You can be a value investor, growth investor, dividend investor. The key with dividend investing is okay I stick to what I do no matter what. And the problem is that over the past 45 years dividend investing was really good because yields interest rates kept going down which means that yields also kept going down. So investors benefited from dividends but also from principal appreciation over time especially from stocks. However if the trend inverts if interest rates start going up the principal will go down much faster especially if interest rates continue to increase fast as they have been increasing over the last years then the principal declines much faster than the dividends can cover. And that's a big big risk for stocks and that's something you have to see if you are a dividend investor. What to do about it? Do you accept it as normal volatility as something nothing can be done or do you wish to take more safety with treasuries or not? Rebalance between treasuries and stocks depending on the dividend interest rate risk reward. That's something that also Ben Graham has been saying constantly for the defensive dividend investor in the book that we are summarizing in the chapters about Benjamin Graham and the intelligent investor. Check the videos in the link above. I'm not a dividend investor because for me the key is the earnings yield not the dividend yield because earnings are what determine long-term returns. I prefer a stock that has an earnings yield of four percent and a dividend yield of one percent then a dividend stock that has an earnings yield of three percent and a dividend of three percent because the earnings yield will be reinvested in the business you don't pay taxes on that reinvested earnings as you pay on dividends which is a benefit over the long term. Dividends are let's say a behavioral feeling because you feel you get some reward constantly and that's let's say our human attribute that isn't that rational but helps you with saving and investing over the long term because it gives you constancy which is something good and can't be discussed. Everybody has his own personal preferences. Now the point with dividends is that the SAP 500 average dividend yield since 1871 was four point three percent while now it is at one point eight percent. The average earnings yield was seven point thirty eight percent while now it is at four percent and that's a big big problem for all dividend investors and something to keep in mind if the dividend yield returns to the mean you will need a lot of years of dividends to cover for the difference and that's something to keep in mind and that's something to see what's your risk exposure and how much should you rebalance between dividends and the rising yield of treasuries. Thank you for watching. Be looking forward to your comments about these dividend topics and I'll see you in the next video.