12 Best Dividend Stocks For Rising Interest Rates

Published on April 5, 2023 at 7:38 am by Vardah Gill in Hedge Funds, News

In this article, we discuss 12 best dividend stocks for rising interest rates. You can skip our detailed analysis of stocks in high-interest rate periods and the performance of dividend stocks, and go directly to read 5 Best Dividend Stocks For Rising Interest Rates.

The continuous interest rate hikes have been a cause of investors’ worry for quite some time now. On March 22, the Federal Reserve raised interest rates by a quarter point, which was its ninth increase in a year. Moreover, Fed officials expect to hike interest rates to 5.1% by the end of the year in their effort to fight inflation, according to a report by New York Times.

Rising interest rates can be challenging for nearly every sector, but some industries tend to perform better than others in this environment. For example, banks and other financial institutions typically benefit from growing interest rates since they charge higher rates on loans and earn more on their investments. Similarly, energy and utility sectors can be safe havens for investors during high-interest rate environments as they have predictable cash flows and solid dividend yields. According to a report by Charles Schwab, the energy and financial sectors returned 5% and 3%, respectively, relative to the broader market, in the year following the initial rate increase over the past five rate hike cycles from 1994 to 2015. Other sectors that outperformed the S&P 500 during this period include communication services, healthcare, information technology, and utilities.

Though dividend stocks may experience some headwinds during periods of high-interest rates, the impact is not always straightforward and may depend on the individual stock’s financial position, dividend history, and dividend yields. Companies that have strong dividend histories and solid financial health often outperform their peers and the broader market when interest rates are high. In our previous article, we reported that high-dividend stocks surpassed the S&P 500 in 7 out of 10 rising interest rate periods from 1960 to 2017. We also highlighted the performance of companies with strong dividend growth histories between May 2005 and April 2015, when interest rates were high. The report revealed that the S&P 500 Dividend Aristocrats Index delivered an annual average return of 12.3%, compared with an 8.5% return of the Dow Jones US Select Dividend Index. Some of the best dividend stocks include The Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NASDAQ:PEP), and The Procter & Gamble Company (NYSE:PG).

It’s important to be careful when investing in high-interest rate periods because higher rates can have a significant impact on various aspects of the economy and financial markets. To know more about this, readers can have a look at 12 Stocks That Benefit From Rising Interest Rates.

Photo by Nathan Dumlao on Unsplash

Our Methodology:

For this list, we selected dividend stocks from sectors that either remain resilient or benefit in a rising interest rate environment. These companies are from industries like financials, energy and consumer defensive sectors. We selected companies that have raised their dividends for at least five years and analyzed Insider Monkey’s database of Q4 2022 for measuring hedge fund sentiment around each stock. The stocks are ranked in ascending order of the number of hedge funds having stakes in the companies.

12. MGE Energy, Inc. (NASDAQ:MGEE)

Number of Hedge Fund Holders: 12

Dividend Yield as of April 4: 2.13%

MGE Energy, Inc. (NASDAQ:MGEE) is an American utility holding company that produces and distributes electricity and natural gas. On January 20, the company declared a quarterly dividend of $0.4075 per share, which fell in line with its previous dividend. It has been raising its dividends consistently for the past 47 years, which makes it one of the best dividend stocks on our list. The stock has a dividend yield of 2.13%, as of April 4.

In addition to The Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NASDAQ:PEP), and The Procter & Gamble Company (NYSE:PG), MGE Energy, Inc. (NASDAQ:MGEE) is also on investors’ radars due to its strong dividend policy.

As of the close of Q4 2022, MGE Energy, Inc. (NASDAQ:MGEE) was a part of 12 hedge fund portfolios, as per Insider Monkey’s database. The stakes owned by these funds have a collective value of over $16.4 million. Among these hedge funds, Zimmer Partners was the company’s leading stakeholder in Q4.

11. RLI Corp. (NYSE:RLI)

Number of Hedge Fund Holders: 19

Dividend Yield as of April 4: 0.81%

RLI Corp. (NYSE:RLI) is an Illinois-based insurance company that specializes in property and casualty insurance. In the fourth quarter of 2022, the company reported revenue of $360.6 million, which showed an 11.5% growth from the same period last year. During the quarter, the company paid nearly $330 million to shareholders in dividends, which places it as one of the best dividend stocks on our list.

RLI Corp. (NYSE:RLI) holds one of the strongest dividend policies, offering regular dividend payments to shareholders for consecutive 186 quarters. Moreover, the company has raised its payouts for 47 years in a row. It currently pays a quarterly dividend of $0.26 per share and has a dividend yield of 0.81%, as of April 4.

In January, RBC Capital raised its price target on RLI Corp. (NYSE:RLI) to $136 with a Sector Perform rating on the shares, following the company’s recent quarterly earnings.

As of the close of Q4 2022, 19 hedge funds tracked by Insider Monkey were long RLI Corp. (NYSE:RLI), owning stakes worth over $251.3 million collectively.

First Pacific Advisors mentioned RLI Corp. (NYSE:RLI) in its Q4 2022 investor letter. Here is what the firm has to say:

“RLI Corp. (NYSE:RLI) is a high-quality specialty insurer with a collection of niche and arcane lines across property & casualty (P&C). RLI has an attractive combined ratio and return on equity, 9 a conservative underwriting culture and growth opportunities. Despite its full price, we continue to hold RLI because of its high quality and our reluctance to trade in and out. The insurance sector as a whole performed well last year, but RLI got a boost from strong Q3 2022 earnings and the sale of its equity stake in sunglass manufacturer Maui Jim.”

10. Extra Space Storage Inc. (NYSE:EXR)

Number of Hedge Fund Holders: 27

Dividend Yield as of April 4: 4.19%

Extra Space Storage Inc. (NYSE:EXR) is an American real estate investment trust company that invests in self-storage facilities. The company is headquartered in Utah. In March, BMO Capital raised its price target on the stock to $173 and maintained a Market Perform rating on the shares. The firm appreciated the company’s increased scale and diversification.

Extra Space Storage Inc. (NYSE:EXR), one of the best dividend stocks, currently pays a quarterly dividend of $1.62 per share, having raised it by 8% in February. This marked the company’s 13th consecutive year of dividend growth. As of April 4, the stock has a dividend yield of 4.19%.

At the end of December 2022, 27 hedge funds tracked by Insider Monkey reported having stakes in Extra Space Storage Inc. (NYSE:EXR), the same as in the previous quarter. These stakes have a consolidated value of roughly $173 million.

Renaissance Investment Management mentioned Extra Space Storage Inc. (NYSE:EXR) in its Q4 2022 investor letter. Here is what the firm has to say:

“Lastly, Extra Space Storage Inc. (NYSE:EXR) lost 14.0% in the quarter. Driven by strong pricing gains, the company reported strong operating results. However, pricing gains came at the expense of occupancy, which came in lower than expectations. Management also lowered full-year guidance due to excess inventory in the self-storage market.”

9. Aflac Incorporated (NYSE:AFL)

Number of Hedge Fund Holders: 32

Dividend Yield as of April 4: 2.60%

Aflac Incorporated (NYSE:AFL) is a Georgia-based insurance company that offers supplemental insurance to its consumers. The company currently pays a quarterly dividend of $0.42 per share and has a dividend yield of 2.60%, as of April 4. In February 2023, the company took its dividend growth streak to 41 years, which makes it one of the best dividend stocks on our list.

In January, JPMorgan presented a neutral stance on Aflac Incorporated (NYSE:AFL) and its business outlook this year. In view of this, the firm raised its price target on the stock to $66 and maintained a Neutral rating on the shares.

As per Insider Monkey’s database for Q4 2022, 32 hedge funds owned stakes in Aflac Incorporated (NYSE:AFL), compared with 34 in the previous quarter. These stakes have a consolidated value of over $620.5 million. With over 1.6 million shares, Citadel Investment Group was the company’s leading stakeholder in Q4.

8. The Williams Companies, Inc. (NYSE:WMB)

Number of Hedge Fund Holders: 34

Dividend Yield as of April 4: 6.00%

An Oklahoma-based energy company, The Williams Companies, Inc. (NYSE:WMB) is one of the best dividend stocks on our list. On March 9, the company declared a 5.3% hike in its quarterly dividend to $0.4475 per share. Through this increase, it took its dividend growth streak to seven years. The stock’s dividend yield on April 4 came in at 6.00%.

In January, US Capital Advisors upgraded The Williams Companies, Inc. (NYSE:WMB) to Overweight with a $36 price target, highlighting the company’s overall performance.

In FY22, The Williams Companies, Inc. (NYSE:WMB) reported revenue of nearly $11 billion, which showed a 3.2% growth from the same period last year. The company’s cash position remained strong as its operating cash flow came in at roughly $5 billion, up 24% from the same period last year.

As of the close of Q4 2022, 34 hedge funds tracked by Insider Monkey owned stakes in The Williams Companies, Inc. (NYSE:WMB), compared with 35 in the previous quarter. These stakes have a consolidated value of over $286.6 million.

Longleaf Partners mentioned The Williams Companies, Inc. (NYSE:WMB) in its Q2 2022 investor letter. Here is what the firm has to say:

“The Williams Companies, Inc. (NYSE:WMB) – US natural gas pipeline operator Williams contributed as it benefitted from positive natural gas tailwinds in the quarter. After scaling back the position in the first quarter, we sold the remaining position in the quarter as its price reached our appraisal value. This was a very successful investment that was extremely contrarian in 2019 and now has become much more consensus appreciated.”

7. The Travelers Companies, Inc. (NYSE:TRV)

Number of Hedge Fund Holders: 35

Dividend Yield as of April 4: 2.16%

The Travelers Companies, Inc. (NYSE:TRV) is an American insurance company that deals in a wide range of insurance-related services. JPMorgan expects the company’s business to be healthy and more defensive than other financials. Given this, the firm lifted its price target on the stock to $185 in March.

The Travelers Companies, Inc. (NYSE:TRV) currently pays a quarterly dividend of $0.93 per share and has a dividend yield of 2.16%, as of April 4. The company is one of the best dividend stocks on our list as it has raised its payouts for 33 years in a row.

At the end of Q4 2022, 35 hedge funds in Insider Monkey’s database reported having stakes in The Travelers Companies, Inc. (NYSE:TRV), compared with 37 a quarter earlier. These stakes have a collective value of over $608.5 million.

6. Chubb Limited (NYSE:CB)

Number of Hedge Fund Holders: 45

Dividend Yield as of April 4: 1.69%

Chubb Limited (NYSE:CB) is a New Jersey-based insurance company that has operations in over 54 countries. On February 23, the company declared a quarterly dividend of $0.83 per share, which was in line with its previous dividend. The company has raised its dividends for 29 years straight and has paid dividends to shareholders for 121 years. The stock’s dividend yield on April 4 came in at 1.69%. Other best dividend stocks favored by investors include The Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NASDAQ:PEP), and The Procter & Gamble Company (NYSE:PG).

In March, JPMorgan gave a positive outlook on the property and casualty insurance sectors and raised its price target on the stock to $241 with an Overweight rating on the shares.

The number of hedge funds tracked by Insider Monkey owning stakes in Chubb Limited (NYSE:CB) grew to 45 in Q4 2022, from 41 in the previous quarter. The collective value of these stakes is over $2.18 billion.

Aristotle Capital Management mentioned Chubb Limited (NYSE:CB) in its Q1 2022 investor letter. Here is what the firm has to say:

“Our investment in Chubb began in the fourth quarter of 2015, shortly after ACE Limited announced it would acquire the Chubb Corporation, creating the largest global property and casualty insurance company by underwriting income. During our nearly seven-year holding period, the company’s combination progressed leading to the realization of main catalysts we had identified. These included cost savings, broadened product offerings and an expanded customer base, as well as enhanced distribution capabilities and improved pricing due to scale. In addition, Chubb successfully grew its profitable high-net-worth personal lines. While we still consider Chubb to be a high-quality business, few catalysts remain after what was, in our opinion, a remarkable run of successful business execution. As such, we decided to step aside in favor of what we believe to be a more optimal investment in Blackstone.”

Click to continue reading and see 5 Best Dividend Stocks For Rising Interest Rates.

AI Fire Sale: Insider Monkey’s #1 AI Stock Pick Is On A Steep Discount

Published on December 13, 2024 at by Inan Dogan, PhD

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Seeking a Strong Gold Market Upside?

Published on December 19, 2024 at by Insider Monkey Staff

Brace yourself.

There’s no question that thanks to Washington’s disastrous policies – and out-of-control spending – the outlook for the U.S. economy now appears dire.

And with the U.S. national debt now rising by a staggering $1 trillion every 100 days…there are no easy solutions to help get the nation back on track.

While Jay Powell and the Biden-Harris White House sweat out a federal debt that has reached $35.5 trillion – and climbing – many investors have raced to the sidelines with their cash.

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As shocking as it may sound, with no end in sight for the Fed’s money printing, we could see the price of gold increase by many multiples in the years ahead.

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Meanwhile, as profitable as gold has been, select gold mining stocks have really kicked into high gear, handing investors even bigger profits.

Click to continue reading…

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