Dividend Stocks Still a Great Bet While Rates Rise

Harnessing the ability to raise payouts to beat inflation

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Dividend Stocks Still a Great Bet While Rates Rise

McDonald’s (MCD) franchises and operates McDonald’s restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. This dividend champion has managed to boost distributions for 36 years in a row, and has a five year dividend growth rate of 13.90% per year. Currently, the stock is trading at 18 times earnings, yields 3.10% and has an adequately covered dividend. Earnings per share are projected to increase over the next five years. Check my analysis of McDonald’s.

Philip Morris (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company has managed to boost dividends for 5 years in a row, and has a five year dividend growth rate of 13.10% per year. Currently, the stock is trading at 16.80 times earnings, yields 3.90% and has an adequately covered dividend. Earnings per share are projected to increase by % over the next five years. Check my analysis of PMI.

Chevron (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. This dividend champion has managed to boost distribution payments for 26 years in a row, and has a ten year dividend growth rate of 9.20% per year. Currently, the stock is trading at 9 times earnings, yields 3.30% and has an adequately covered dividend. Earnings per share are projected to increase over the next five years. Check my analysis of Chevron.

Aflac (AFL) provides supplemental health and life insurance products in Japan and U.S. The company has managed to boost dividends for 30 years in a row, and has a ten year dividend growth rate of 10.90% per year. Currently, the stock is trading at 9 times earnings, yields 2.50% and has an adequately covered dividend. Earnings per share are projected to increase by % over the next five years. Check my analysis of Aflac

To be perfectly clear however, rising yields on treasuries do signal that cost of capital will be higher over time. This does affect corporate profits, as many companies borrow extensively to finance their daily operating needs. The sad part that many anti-dividend arguments miss is that rising interest rates are not good for businesses in general, not just dividend paying ones.

However, because the economy is doing better, companies will be able to sell more goods and services, which would offset rising interest rates. However, companies with strong competitive advantages will be able to generate rising profits over time. They can deal with the cost of higher interest rates by passing higher costs to customers who want the products, making operations more efficient by reducing duplicate functions, or working ways to reduce the need for borrowing to finance short-term operations.

Full Disclosure: Long MCD, PM, CVX,  AFL


Article printed from InvestorPlace Media, http://investorplace.com/2013/06/rising-interest-rates-affect-all-businesses-not-just-dividend-paying-ones-mcd-pm-afl-cvx/.

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