For income investors — particularly those nearing retirement — dividend stocks have always been an important part of their portfolios. And the underlying value proposition won’t fade away simply because the Fed’s “tapering” will lead interest rates higher. But a rising rate environment will force investors to scrutinize those dividend stocks more carefully — and not all of these “dull darlings” will make the grade.
First, the good news: Dividend stocks boast the benefit of providing reliable payments that can be reinvested, and many top dividend stocks — particularly utilities — are mature and stable, so they and offer a hedge of protection in times of volatility. The bad news: Many of the most stable dividend stocks have been seriously overbought in recent years by investors seeking a safe haven from tough economic times.
But there are still some stable, yet affordable stocks that offer an attractive dividend yield. In picking our dividend stocks, I’m focusing on these three criteria: A dividend yield of 3% or more, a beta lower than 0.8 (which theoretically indicates that the stock is 20% less volatile than the broader market) and a price-to-earnings (P/E) ratio that is below its five-year average.
Here are three stable, dividend stocks that should keep running strong for a while longer and would make great additions to any retirement portfolio: