In this article, we discuss 13 best dividend stocks for rising interest rates. You can skip our detailed analysis of dividend stocks and their previous performance in the rising interest rate environments, and go directly to read 5 Best Dividend Stocks for Rising Interest Rates.
The increase in interest rates, which started in 2022, came about due to the resurgence of inflation. The Consumer Price Index (CPI), a measure of the cost of living, rose significantly to 9.1% for the year ending June 2022. In response to this persistent inflation, the Federal Reserve raised the federal funds rate a total of 11 times between March 2022 and July 2023. During this time frame, interest rates in the wider bond market also experienced an increase, resulting in higher borrowing costs for both consumers and businesses. This measure was aimed at restraining economic expansion and job creation as a means to alleviate the inflationary pressure. As of January 2024, inflation over the preceding 12 months had moderated to 3.1%, although it remained above the Federal Reserve's target of 2%. Following their December 2023 meeting, the Fed projected three quarter-point reductions by the close of 2024, aiming to bring the benchmark rate down to 4.6%.
Increased interest rates frequently cause shifts in market dynamics, creating distinct opportunities for growth and profitability in certain industries. For instance, sectors such as banking may thrive, while real estate and utilities could face challenges due to their dependence on borrowing. Although increasing interest rates present difficulties, particularly in sectors sensitive to interest, investing in stocks for the long term presents advantages such as compounded growth, decreased volatility, and potential tax advantages. Long-term investing helps in managing volatility since short-term fluctuations in stock prices tend to average out over extended periods, resulting in more stable returns. Additionally, stocks typically increase in value over time, benefiting long-term investors. Moreover, many stocks offer dividends, furnishing a consistent income stream that can be reinvested to foster additional growth. The Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NASDAQ:PEP), and The Procter & Gamble Company (NYSE:PG) are some of the best dividend stocks because of their decades-long dividend growth histories.
A study conducted by Global X revealed that since 1960, there have been 10 significant periods of interest rate increases. These periods are characterized by a rise in the yield of 10-year US Treasuries by more than 100 basis points over a span of 10 months or longer. The report focused on the performance of high-dividend stocks during these phases. It was found that high-dividend stocks consistently outperformed the market by an average annualized rate of 0.80% during rising interest rate periods. Specifically, high dividend stocks surpassed the market's performance in 7 out of the 10 observed periods of rising interest rates. The report also noted that high-dividend stocks are commonly included in investment portfolios to provide income for investors. Historically, these stocks have shown a tendency to outperform the S&P 500 index.
In this article, we will take a look at some of the best dividend stocks for rising interest rates.
13 Best Dividend Stocks For Rising Interest Rates
A close-up of a chart of company stock prices rising, reflecting its market capitalization.
Our Methodology:
For this list, we selected dividend stocks from sectors that either remain resilient or benefit in a rising interest rate environment. These companies are from industries like financials, energy, and consumer defensive sectors. We selected companies that have strong dividend histories and analyzed Insider Monkey’s database of Q4 2023 to measure hedge fund sentiment around each stock. The stocks are ranked in ascending order of the number of hedge funds having stakes in the companies.
Aflac Incorporated (NYSE:AFL) is an American insurance company that is known for its specialty insurance products, particularly its flagship product, supplemental health insurance, which is often sold alongside major medical coverage. On January 31, the company declared a 15% hike in its quarterly dividend to $0.50 per share. Through this increase, the company stretched its dividend growth streak to 42 years, which makes AFL one of the best dividend stocks for rising interest rates. The stock offers a dividend yield of 2.49%, as of March 5.
The number of hedge funds tracked by Insider Monkey owning stakes in Aflac Incorporated (NYSE:AFL) grew to 28 in Q4 2023, from 25 in the previous quarter. The consolidated value of these stakes is over $236 million. Among these hedge funds, Ariel Investments was the company's leading stakeholder in Q4.
The Travelers Companies, Inc. (NYSE:TRV) is a leading provider of property and casualty insurance for both personal and commercial purposes. The company offers a quarterly dividend of $1.00 per share and has a dividend yield of 1.82%, as of March 5. It is one of the best dividend stocks on our list as the company has raised its dividends every year for the past 10 years at an annual average rate of 7%.
At the end of Q4 2023, 34 hedge funds in Insider Monkey's database reported having stakes in The Travelers Companies, Inc. (NYSE:TRV), compared with 43 in the previous quarter. The collective value of these stakes is over $941 million.
The Williams Companies, Inc. (NYSE:WMB) is a leading energy infrastructure company that operates a vast network of natural gas pipelines and gathering systems across the US. On January 30, the company announced a 6.1% increase in its quarterly dividend to $0.475 per share. This was the company's eighth consecutive year of dividend growth, which places WMB on our list of the best dividend stocks for rising interest rates. The stock's dividend yield on March 5 came in at 5.18%.
The Williams Companies, Inc. (NYSE:WMB) remained popular among elite funds at the end of Q4 2023 as the company ended the quarter with 36 hedge fund positions, up from 27 in the previous quarter, according to Insider Monkey's database. The total value of these stakes is roughly $278 million.
Chubb Limited (NYSE:CB) is next on our list of the best dividend stocks for rising interest rates. The global insurance company currently offers a quarterly dividend of $0.86 per share for a dividend yield of 1.38%, as of March 5. The company maintains a 30-year streak of consistent dividend growth.
Chubb Limited (NYSE:CB) was a part of 37 hedge fund portfolios at the end of Q4 2023, as per Insider Monkey's database. The stakes owned by these hedge funds have a collective value of over $942.3 million. With nearly 1 million shares, Polar Capital was the company's leading stakeholder in Q4.
American International Group, Inc. (NYSE:AIG) is a multinational insurance company offering a wide range of insurance products and services. This includes insurance for homes, automobiles, boats, valuable possessions, and other personal property, as well as commercial insurance for businesses, including property insurance, liability insurance, and specialized coverages for various industries.
American International Group, Inc. (NYSE:AIG), one of the best dividend stocks, currently offers a quarterly dividend of $0.36 per share. As of March 5, the stock has a dividend yield of 1.95%.
The number of hedge funds in Insider Monkey's database owning stakes in American International Group, Inc. (NYSE:AIG) jumped to 51 in Q4 2023, from 42 in the previous quarter. The total value of these stakes is over $2 billion.
Colgate-Palmolive Company (NYSE:CL) is a multinational consumer goods company primarily focused on the production, distribution, and marketing of household, healthcare, and personal care products. The company's dividend growth streak currently spans over 61 years, which makes CL one of the best dividend stocks for rising interest rates. Currently, it offers a quarterly dividend of $0.48 per share and has a dividend yield of 2.21%, as recorded on March 5.
As of the close of Q4 2023, 54 hedge funds tracked by Insider Monkey reported having stakes in Colgate-Palmolive Company (NYSE:CL), up from 52 in the previous quarter. These stakes are worth nearly $3 billion in total. First Eagle Investment Management owned roughly 11 million CL shares, becoming the company's leading stakeholder in Q4.
Costco Wholesale Corporation (NASDAQ:COST) is a multinational retail corporation that operates a chain of membership-based warehouse clubs. The company was included in 57 hedge fund portfolios at the end of Q4 2023, compared with 65 in the previous quarter, as per Insider Monkey's database. The stakes owned by these hedge funds have a total value of over $4 billion.
One of the best dividend stocks for rising interest rates, Costco Wholesale Corporation (NASDAQ:COST) has raised its dividends for 19 years in a row. The company's current quarterly dividend comes in at $1.02 per share for a dividend yield of 0.53%, as of March 5.
An American multinational home improvement retailer, The Home Depot, Inc. (NYSE:HD) ranks sixth on our list of the best dividend stocks for rising interest rates. The company offers a quarterly dividend of $2.25 per share, having raised it by 7.7% in February this year. This was the company's 14th consecutive year of dividend growth. As of March 5, the stock has a dividend yield of 2.37%.
As of the end of Q4 2023, 70 hedge funds tracked by Insider Monkey held stakes in The Home Depot, Inc. (NYSE:HD), down from 76 in the preceding quarter. These stakes are collectively valued at roughly $6 billion.
