Tags: dividend | stocks | rising | rate

WSJ: How to Play Dividend Stocks in a Rising Rate Environment

By Dan Weil   |   Wednesday, 10 Jul 2013 09:03 AM

Many dividend stocks have hit the skids in recent weeks amid comments from Federal Reserve Chairman Ben Bernanke that the Fed may taper its quantitative easing soon.

But now isn't the time to give up on these investments, experts say.

"Dividends are a good long-term theme," Russ Koesterich, chief investment strategist at BlackRock, tells The Wall Street Journal.

Editor's Note:
Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

It will just take more work now to find winners.

Investors can take heart in a study by Ned Davis Research that found that dividend stocks in the Standard & Poor's 500 Index have returned an annualized 2.2 percent when the Fed raises interest rates, compared with 1.8 percent for non-dividend stocks in the index.

The Journal suggests a couple strategies for dividend-stock investing in this environment.

• Avoid high-yield stocks, because they often have little room to raise their dividends.

• Go for stocks in sectors that will benefit from a growing economy, such as technology, industrials and healthcare. As the economy improves, these companies can raise their dividends. And cyclical stocks have outperformed in times of rising rates.

Josh Peters, director of equity income strategies at research firm Morningstar, sees real estate investment trusts (REITs) offering good value now.

Investors were "discounting at very low baseline level of long-term interest rates," he says on Morningstar.com. "So as those started to move REITs have gotten slammed, but the market is jumping out in front of that trend."

Realty Income Corp. is his favorite REIT.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

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