13 Best Dividend Stocks For Rising Interest Rates

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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.