Warsh's Rate Hike Warning Slams High-Yielding Dividend Stocks

Fed Chair Kevin Warsh's comments at Jackson Hole on Aug. 28 sparked concerns about an impending rate hike. The Federal Reserve could raise interest rates at its next meeting, which would make borrowing more expensive for companies.

This is particularly concerning for high-yielding dividend stocks. Higher rates tend to weigh on their value and can cause investors to seek safer investments like bank CDs and government bonds.

Some of the most rate-sensitive investments include real estate investment trusts (REITs) and mortgage REITs, which rely heavily on debt to fund acquisitions and development projects. For example, AGNC Investment's borrowing costs would rise if interest rates increased, narrowing its spread between costs and income.

However, not all high-yielding dividend stocks would be negatively impacted by a rate hike. Business development companies (BDCs) like Ares Capital have 71% of their investment portfolio in floating-rate debt, which would earn higher interest if rates increased.