12 Best Dividend Stocks For Rising Interest Rates

In this article, we discuss 12 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.

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, PepsiCo, Inc., and The Procter & Gamble Company, MGE Energy, Inc. is also on investors’ radars due to its strong dividend policy.

As of the close of Q4 2022, MGE Energy, Inc. 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. 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. 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., owning stakes worth over $251.3 million collectively.

First Pacific Advisors mentioned RLI Corp. 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., 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., 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. 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 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, 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. to Overweight with a $36 price target, highlighting the company’s overall performance.

In FY22, The Williams Companies, Inc. 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., 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. 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. 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., 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, PepsiCo, Inc., and The Procter & Gamble Company.

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 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 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.”

5. Colgate-Palmolive Company (NYSE:CL)

Number of Hedge Fund Holders: 61
Dividend Yield as of April 4: 2.55%

Colgate-Palmolive Company (NYSE:CL) is an American multinational consumer products company that specializes in household, healthcare, and other personal care products. In March, UBS raised its price target on the stock to $86 and maintained a Buy rating on the shares, highlighting the company’s organic revenue growth over the past few years.

Colgate-Palmolive Company is one of the best dividend stocks on our list as the company has raised its payouts consistently for the past 61 years. The company offers a quarterly dividend of $0.48 per share and has a dividend yield of 2.55%, as of April 4.

At the end of December 2022, 61 hedge funds in Insider Monkey’s database had stakes in Colgate-Palmolive Company, compared with 57 in the previous quarter. The consolidated value of these stakes is over $4.46 billion.

Third Point mentioned Colgate-Palmolive Company in its Q4 2022 investor letter. Here is what the firm has to say:

“Colgate-Palmolive Company (NYSE:CL) remains one of the firm’s largest equity positions. The company offers defensive growth at a reasonable valuation, and we continue to see the potential for shares to deliver attractive risk adjusted returns over the next several years.

Fourth Quarter results were disappointing. The company missed on gross margins, guided 2023 well below the Street, and took another large impairment charge on its portfolio of skin care brands. The price action on the day of the print (down 5%) was extreme and perhaps reflective of growing investor frustration that the company has failed to sustainably grow earnings over the past decade.”

3. The Home Depot, Inc. (NYSE:HD)

Number of Hedge Fund Holders: 62
Dividend Yield as of April 4: 2.81%

The Home Depot, Inc. (NYSE:HD) is next on our list of the best dividend stocks. The company pays a quarterly dividend of $2.09 per share and has a dividend yield of 2.81%, as of April 4. It maintains a 13-year streak of consistent dividend growth.

In February, Truist maintained a Buy rating on The Home Depot, Inc., highlighting the resiliency of home improvement overall.

According to Insider Monkey’s Q4 2022 database, 62 hedge funds owned stakes in the company, with a total value of over $4.8 billion.

Matrix Asset Advisors mentioned The Home Depot, Inc. in its Q3 2022 investor letter. Here is what the firm has to say:

“During the quarter, we re-established a position in The Home Depot, Inc. (NYSE:HD) sold earlier this year, after the shares declined sharply on big picture concerns about a softer housing market and lower consumer spending. We believe that HD is a very well-managed company, positioned to continue showing good profits even as the economy decelerates. The products it carries in inventory are in year-round demand from contractors and homeowners wanting to maintain and improve their homes. The company has historically been shareholder friendly, repurchasing shares and increasing the dividend, most recently by 15% earlier this year. On September 30, HD’s current dividend yield was 2.8%.”

3. Costco Wholesale Corporation (NASDAQ:COST)

Number of Hedge Fund Holders: 66
Dividend Yield as of April 4: 0.72%

Costco Wholesale Corporation (NASDAQ:COST) is an American big-box retail company. Roth MKM lifted its price target on the stock to $494 in March with a Neutral rating on the shares, presenting a conservative outlook on the company’s performance this year.

Costco Wholesale Corporation, one of the best dividend stocks, currently pays a quarterly dividend of $0.90 per share for a dividend yield of 0.72%, as of April 4. The company has been rewarding shareholders with growing dividends for 18 years now.

As per Insider Monkey’s Q4 2022 database, 66 hedge funds owned stakes in Costco Wholesale Corporation, with a total value of $3.4 billion.

Madison Funds mentioned Costco Wholesale Corporation in its Q4 2022 investor letter. Here is what the firm has to say:

“Costco Wholesale Corporation (NASDAQ:COST) stock fell after November sales results showed a slowing consumer. The slower November sales were followed by a slight first quarter miss with lower-than-expected margins. Costco commented that they are not seeing trade-down but private label penetration has increased modestly. Traffic continues to be positive, and Costco remains well-positioned in a more challenging macro environment due to its strong value proposition.”

2. Exxon Mobil Corporation (NYSE:XOM)

Number of Hedge Fund Holders: 79
Dividend Yield as of April 4: 3.13%

Exxon Mobil Corporation (NYSE:XOM) is a Texas-based oil and natural gas company. The company pays a quarterly dividend of $0.91 per share and has a dividend yield of 3.13%, as of April 4. It is one of the best dividend stocks on our list as it maintains a 40-year streak of consistent dividend growth.

At the end of Q4 2022, the number of hedge funds owning stakes in Exxon Mobil Corporation grew to 79, from 75 a quarter earlier, according to Insider Monkey’s Q4 data. These stakes have a collective value of over $7.1 billion.

1. Bank of America Corporation (NYSE:BAC)

Number of Hedge Fund Holders: 100
Dividend Yield as of April 4: 3.08%

Bank of America Corporation (NYSE:BAC) is an American multinational investment bank and financial services company. It tops our list of the best dividend stocks as it was a part of 100 hedge fund portfolios in Q4 2022, as per Insider Monkey’s data. The stakes owned by these hedge funds have a total value of $37.5 billion.

Bank of America Corporation currently offers a quarterly dividend of $0.22 per share and has a dividend yield of 3.08%, as recorded on April 4. The company holds a 9-year track record of consistent dividend growth.

Ariel Investments mentioned Bank of America Corporation in its third-quarter 2022 investor letter. Here is what the firm has to say:

“We initiated three new positions in the quarter. We added leading financial institution Bank of America Corporation (NYSE:BAC) which serves individual consumers, small and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services. The current company was formed through various mergers including NationsBank, FleetBoston, US Trust, Countrywide Financial, and Merrill Lynch with the legacy commercial bank to form a national banking powerhouse and bulge bracket investment firm. As one of the ‘Big Four’ U.S. banks it enjoys scale driven cost advantages and economies of scale which provide meaningful competitive advantages and potential for strong returns in the largely commoditized banking industry. A survivor of the financial crisis, BAC has emerged with a solid capital base and stands to benefit from a rising interest rate environment.”

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Disclosure. None. 12 Best Dividend Stocks For Rising Interest Rates is originally published on Insider Monkey.