Today the Dow rallied over 100 points in anticipation of the FOMC’s interest rate decision (which will be revealed at 2:00 PM EST tomorrow). The general expectation is that the Fed will not raise rates this month—and as I’ve made clear before, I agree.
Nonetheless, all this speculation about when the Fed will raise rates has put pressure on high dividend stocks. In addition, the combination of Greece uncertainties and short covering caused global bond yields to climb. Everyone knows that interest rates move in the opposite direction of bond prices, and the same is true for the value of high-yield stocks. This is because when interest rates rise, the value of future cash flows must be discounted at a higher rate. It’s this free cash that is put towards shareholder perks like dividends.
So some investors fear that dividend stocks are no longer as valuable as they were before. This means that high dividend stocks are no longer the oasis that they have been for 18 months.
However, if you consider yourself an income investor, I wouldn’t throw in the towel just yet; there is an exception for every rule. In this case, companies that can be expected to increase their dividends year after year, no matter what happens with interest rates, would be an income investor’s best bet.
All this talk about the Fed and the general obsession over rates has me looking at just these kinds of stocks. Now, that’s not to say that you should start loading up on all companies known for dividend hikes. There are a number of other considerations that can’t be ignored, like whether the company’s financials are strong enough to maintain its strong dividend track record.
And with second-quarter earnings season just around the corner, it’s extremely important that all stock pickers keep this in mind. To get you started, I’ve run over 1000 of Wall Street’s leading dividend payers (in terms of yield and track record) through both Dividend Grader and Portfolio Grader.
Of these 1000 stocks, just five fit the following criteria: 1) A 2% dividend yield or higher. 2) An A- or B-rating in Dividend Grade. 3) An A- or B-rating in Portfolio Grader. If you’re looking for a highly-rated dividend stock, any of these five deserve a second look:
|Ticker||Company Name||Dividend Yield||Dividend Grader Grade||PortfolioGrader Grade|
|CAG||ConAgra Foods, Inc.||2.62%||A||B|
|KRC||Kilroy Realty Corporation||2.06%||A||B|
|LLY||Eli Lilly and Company||2.35%||B||A|
|REG||Regency Centers Corporation||3.09%||A||B|
And if you really want to kick your dividend strategy up a notch, my Blue Chip Growth newsletter features many of the best dividend stocks that money can buy right now. Current Blue Chip Growth readers can look forward to regular commentary and specific buy instructions on nearly 30 premium dividend stocks. If you’re not currently a Blue Chip Growth member but would be interested in learning more about joining, you may visit here.