Dividend stocks vulnerable to Fed taper hit Dividend stocks - dubbed "the new fixed income" as investors search for yield amid historically low interest rates - could be among the investments most sensitive to US Federal Reserve chairman Ben Bernanke's impending pronouncements on monetary easing. US utilities stocks are down 8.7 per cent and telecommunications equities 3.9 per cent lower since the end of April when talk began that the Fed may taper its quantitative easing programme, making them the two worst sectors in the US equity market. Their declines mirror those seen in the value of long-term corporate bonds, reflecting their fading relative attractions versus new bonds that will pay higher interest rates. James Paulsen, chief investment strategist at Wells Capital Management, said: "The driving force behind the move is that bonds got killed in May and bond-like stocks did as well." High-dividend stocks have many of the same characteristics of long-duration bonds, including relatively predictable cash payouts and low volatility. They were in the vanguard of the stock market rally this year that has pushed the S&P 500 up 15.5 per cent since the start of 2013. Ashish Shah, head of head of global credit at AllianceBernstein, said risk-averse investors have crowded into many of the same assets in recent years and dividend stocks have attracted money from equity investors and traditional bondholders alike. "Investors are looking for income and very high-quality instruments like government bonds are not reaching the levels of income that investors require," he added. Investors migrated to the centre of the risk spectrum: lower volatility equities and yieldier fixed income. The utilities sector bottomed on June 12, the day after the yield on the benchmark 10-year Treasury peaked at 2.29 per cent. Given how much bad news has been priced into high-yielding stocks, a dovish signal from the Fed on Wednesday could lead these areas to bounce back Alec Young, S&P Capital IQ Many long-term corporate bonds hit their lows around the same time, including the 30-year bond from iPhone maker Apple, which is currently trading 6 per cent below its late April issue price. The utilities sector is up 2.4 per cent and telecoms up 4.1 per cent since their recent lows as market sentiment has shifted and investors began predicting Mr Bernanke will use his Wednesday press conference to reiterate that quantitative easing will only be phased out as the US economy improves. "Given how much bad news has been priced into high-yielding stocks, a dovish signal from the Fed on Wednesday could lead these areas to bounce back," said Alec Young, global equity strategist at S&P Capital IQ. "We have seen investors move in anticipation that long-term interest will continue to move higher," said Kate Warne, investment strategist at Edward Jones. This is not a rotation out of high-yield stocks in favour of others but into either cash or shorter term fixed-income products.