Now that the election is over, the Federal Reserve seems set to begin raising interest rates again in December. Conventional wisdom suggests that rising rates could be bad news for many high-dividend stocks.
Bill McMahon, chief investment officer of dividend investment specialist firm ThomasPartners, says not all high-dividend stocks are at risk. Back in September, McMahon said that the high-dividend stocks that are most at risk are “bond-like” stocks.
What type of characteristics define a bond-like stock? Bond-like stocks pay a high yield but produce relatively low growth. That means that earnings and/or dividend growth is weak or nonexistent. Bond investors are typically looking for consistency and reliability, not growth.
Another thing to look out for is relative performance in recent years. Many bond-like high dividend stocks have performed relatively well in the low-rate environment.
On the other hand, high-dividend stocks that have made aggressive growth moves or that remain extremely undervalued are still solid plays in the current environment. Here’s a look at three options that shouldn’t feel much pain from a new Fed tightening cycle.