Rising Rates and High Yield Stocks

 It is a commonly held notion that high yield stocks tend to see a selloff in a rising rate environment. Investors begin to leave the high yielding company because bonds offer a safer means to the safe annual payment. As these investors sell the stock can experience a mild downturn in price. The pattern described is not a new one, however is the projection of a rising rate environment enough of a reason to sell a high yield stock?

I believe it is not a strong enough rationale to issue a sell rating on a holding. If a stock is purchased with a sound investment rationale, the stock should be sold if the price target is reached or the original rationale no longer holds true. There are of course exceptions, but generally these are sound guidelines.

In a rising rate environment the price of a stock may very well experience a small downturn, however that does not mean that the investment rationale no longer holds. It is more likely that the rationale still holds true and that this slight pullback is a convenient time to add to a position given that the company is still strong.