If you are looking for dividends in this low rate world, you still have some good options. What about dividend growth stocks? They can be a nice investment in a low rate market, but where to look? Healthcare and tech stocks look like a great place. Analysts think dividends in those sectors will rise 10% and 9% respectively, handily outperforming dividend-focused sectors like utilities and REITs. Healthcare looks particularly healthy. Check out Abbvie (5.3% yield), Gilead 3.9%), Pfizer (3.9%), and Eli Lilly (2.2%).
FINSUM: Profits in healthcare have been ballooning and executives seem to be quite focused on returning money to shareholders.
Dividends hold an interesting place in the current market environment. On the one hand, their yields are looking more attractive after the big fall in bond yields. However, some think the bond rally is very fragile and that it will either fall in a big way or at least stall, in which case the outlook for dividend stocks is bleak. So how to handle the environment? One tip is to buy dividend stocks with the fastest dividend growth, not the highest yield, as they have been fairing the best and will likely be the most resistant to rate fluctuations. One research analyst in the space summarized the situation this way, saying “Companies exhibiting stronger earnings growth to support regular dividend hikes have been in greater demand than those more value-oriented ones offering higher income streams”.
FINSUM: Those with the best trending yields will likely be more defensible than those with higher but more stagnant yields.
One of the biggest mistakes that investors might make in this rising rate era is to try to combat rising rates with better yielding bonds. While that strategy can work, especially in short-term bonds with high yields (such as junk bonds), a better strategy is to buy dividend growth stocks. Historically speaking, dividend growth shares have performed well in periods of rising rates, outperforming yield stocks and the broader market. BMO Capital Markets recently put out a piece on the topic, saying that “We prefer to focus on stocks that combine dividend growth and yield characteristics”. Some stocks that meet dividend growth criteria are BlackRock, Bank of America, Union Pacific, and Delta Airlines.
FINSUM: Dividend growth stocks tend to have good capital appreciation during periods of rising rates, which makes them seem like a good bet for this tightening cycle.
Here is a proposition. What if you could have stocks in your portfolio that help you earn income, combat rising rates, and support you during a recession. Look no further than this group of rising dividends stocks that should perform very well in a recession. All three are medical device makers with wide moats and long growth runways that shouldn’t be thrown off path by an economic downturn. The three are Johnson & Johnson, Medtronic, and LeMaitre Vascular. The first two companies are aristocrats and have increased their dividends steadily for over 40 years.
FINSUM: These are interesting choices. Medical device makers do some like good recession-time bets because healthcare demand should hold up nicely in any downturn.
We are in an era of rising rates. That means that income-based stocks generally suffer as their yields look less and less and attractive. So how does one maintain an allocation to high-yielding stocks while preserving capital—buy stocks with good dividend growth. With that in mind, here is a list of seven good dividend growers. The list favors “established dividend paying stocks with strong fundamentals and stocks potentially trading at or below fair value. Dividend safety is another important factor”. The stocks are Home Depot, Boeing, Union Pacific, Amgen, J.M. Smucker, Honeywell International, and Pepsico.
FINSUM: This is a nice mix of sectors and well-known names that seem to have some real value in them. Definitely worth a deeper dive.