11 Best Dividend Stocks For Rising Interest Rates

In this article, we discuss 11 best dividend stocks for rising interest rates.

Though high-interest rates challenge most sectors of the economy, certain industries benefit from this particular environment. For example, the financial sector becomes one of the top choices for investors because of its growing profit margins. Similarly, energy, consumer goods, and retailers stand to benefit as interest rates increase. Moreover, analysts recommend loading up on dividend securities as they can maintain their share prices and generate stable income for shareholders.

Over the years, dividend stocks have exhibited strong performance in high-interest rate periods. According to a report by Global X, high-dividend stocks outperformed the S&P 500 in 7 out of 10 rising interest rates periods from 1960 to 2017. The report also mentioned that half of the high-dividend stocks’ returns came from dividend payments during this period. When investing in dividend stocks, economists recommend companies with proven dividend growth track records, as these stocks have the potential for value appreciation. From May 2005 to April 2015, the S&P 500 Dividend Aristocrats Index outperformed the Dow Jones US Select Dividend Index, as reported by ProShares. The report also cited Bloomberg’s data and mentioned that in high-interest rates years during this period, the S&P 500 Dividend Aristocrats Index delivered an annual average return of 12.3%, significantly surpassing the Dow Jones US Select Dividend Index, which returned 8.5%.

During a turbulent market, dividend stocks contribute to portfolio returns for the long term. According to a report by Morgan Stanley, dividend equities are an ideal form of investment for long-term investors as high-dividend stocks are at their best when inflation is above normal levels but starting to fall. Some dividend stocks that are on investors’ radars include Caterpillar Inc. (NYSE:CAT), Chevron Corporation (NYSE:CVX), and Pentair plc (NYSE:PNR). However, in this article, we will discuss the best dividend stocks for rising interest rates.

Photo by Dan Dennis on Unsplash

Our Methodology:

We scanned Insider Monkey’s database of stock holdings of 920 elite hedge funds and picked the top 11 dividend-paying companies that either benefit from higher interest rates or remain unaffected in a rising interest rate environment. These companies operate in sectors like financials, mortgage, energy and consumer goods. Moreover, these companies have strong dividend policies which would help investors to generate stable income in the current market situation. The stocks are ranked in ascending order of their dividend yields, as of January 19.

11 Best Dividend Stocks For Rising Interest Rates

11. Costco Wholesale Corporation (NASDAQ:COST)

Dividend Yield as of January 19: 0.76%

Costco Wholesale Corporation (NASDAQ:COST) is an American company that operates an international chain of membership warehouses. In December, the company reported $23.8 billion in sales, up 7% from the same period last year. Moreover, its net sales for the 18 weeks that ended on January 1 amounted to $82.6 billion, compared with $76.3 billion a year ago.

In January, DA Davidson raised its price target on Costco Wholesale Corporation (NASDAQ:COST) to $478 with a Neutral rating on the shares, following its December sales data. The firm mentioned that the company is the first major retailer to provide ‘an indication of a rebound’.

Costco Wholesale Corporation (NASDAQ:COST) currently pays a quarterly dividend of $0.90 per share and has a dividend yield of 0.76%, as of January 19. The company has been raising its dividends consistently for the past 18 years, which places it as one of the best dividend stocks for rising interest rates.

In addition to dividend stocks like Caterpillar Inc. (NYSE:CAT), Chevron Corporation (NYSE:CVX), and Pentair plc (NYSE:PNR), Costco Wholesale Corporation (NASDAQ:COST) is gaining ground among investors due to its dividend growth streak.

At the end of Q3 2022, 69 hedge funds tracked by Insider Monkey reported owning stakes in Costco Wholesale Corporation (NASDAQ:COST), up from 64 in the previous quarter. The collective value of these stakes is over $4.4 billion.

Madison Funds mentioned Costco Wholesale Corporation (NASDAQ:COST) 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.”

10. Visa Inc. (NYSE:V)

Dividend Yield as of January 19: 0.82%

Visa Inc. (NYSE:V) is a California-based multinational financial services company. It is one of the best dividend stocks for rising interest rates as the company derives its revenue from client services and licensing fees and has less exposure to high-interest rates. Moreover, the company reported a 19% year-over-year growth in its revenue in fiscal Q4 2022.

Visa Inc. (NYSE:V) currently pays a quarterly dividend of $0.45 per share for a dividend yield of 0.82%, as of January 19. In 2022, the company extended its dividend growth streak to 14 years.

Visa Inc. (NYSE:V) is gaining positive ratings from Street analysts ahead of its Q1 2023 earnings. In January, both Baird and Jefferies raised their price targets on the stock to $270 and $260, respectively.

At the end of Q3 2022, 165 hedge funds in Insider Monkey’s database owned stakes in Visa Inc. (NYSE:V), compared with 166 in the previous quarter. These stakes are worth over $22.4 billion collectively. with roughly 20 million shares, TCI Fund Management was the company’s leading stakeholder in Q3.

Baron Funds mentioned Visa Inc. (NYSE:V) in its Q3 2022 investor letter. Here is what the firm has to say:

“Shares of global payment network Visa Inc. (NYSE:V) fell despite reporting financial results that beat Street forecasts and sustained volume growth in recent months. Revenue grew 19% and EPS grew 33% in the most recent quarter, and double-digit payment volume growth persisted through August. Share price weakness represented a reversal of outperformance earlier this year and may be due to foreign exchange headwinds and concerns about a potential weakening of consumer spending. We continue to own the stock due to Visa’s long runway for growth and significant competitive advantages.”

9. Chubb Limited (NYSE:CB)

Dividend Yield as of January 19: 1.51%

Chubb Limited (NYSE:CB) is a New Jersey-based insurance company that operates in over 54 countries. The company has been raising its dividends consistently for the past 29 years. It currently offers a quarterly dividend of $0.83 per share and has a dividend yield of 1.51%, as of January 19. The company is among the best dividend stocks for rising interest rates.

In the third quarter of 2022, Chubb Limited (NYSE:CB) reported revenue of $11.5 billion, which showed a 15.4% growth from the same period last year. Its operating cash flow for the quarter came in at $3.43 billion. The company’s adjusted net investment income stood at $1.1 billion, up 12% from the prior-year quarter.

As of the close of Q3 2022, 41 hedge funds tracked by Insider Monkey owned stakes in Chubb Limited (NYSE:CB), up from 35 in the previous quarter. These stakes are worth nearly $2 billion collectively. Among these hedge funds, Viking Global was the company’s leading stakeholder in Q3.

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.”

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

Dividend Yield as of January 19: 2.03%

The Travelers Companies, Inc. (NYSE:TRV) is a New York-based insurance company that specializes in commercial property casualty insurance. In the third quarter, the company showed premium growth across its business, bond & specialty, and personal insurance segments. Moreover, it also expects to deliver high levels of fixed income this year, which makes it one of the best dividend stocks for rising interest rates.

The Travelers Companies, Inc. (NYSE:TRV) holds a 33-year-long streak of consistent dividend payments and has raised its payouts for 16 years in a row. The company currently offers a quarterly dividend of $0.93 per share and has a dividend yield of 2.03%, as of January 19.

In January, Evercore ISI upgraded The Travelers Companies, Inc. (NYSE:TRV) to Outperform, with a $220 price target, up from $183. The firm appreciated the company’s strong earnings driven by the acceleration in commercial property rates.

As of the close of Q3 2022, 37 hedge funds tracked by Insider Monkey owned stakes in The Travelers Companies, Inc. (NYSE:TRV), up from 31 in the previous quarter. These stakes have a value of $508.6 million collectively. Among these hedge funds, First Eagle Investment Management was the company’s leading stakeholder in Q3.

7. Aflac Incorporated (NYSE:AFL)

Dividend Yield as of January 19: 2.35%

Aflac Incorporated (NYSE:AFL) is an American insurance company, based in Georgia. The company provides supplemental insurance in the country. It can benefit from high-interest rates because it can purchase higher interest-earnings assets. The company purchased over $1 billion worth of assets through its Japan segment in the third quarter of 2022. This makes the company one of the best dividend stocks for rising interest rates.

Aflac Incorporated (NYSE:AFL) currently offers a quarterly dividend of $0.40 per share and has a dividend yield of 2.35%, as of January 19. The company falls into the category of Dividend Aristocrats as it has been raising its payouts consistently for the past 40 years.

JPMorgan maintained a Neutral rating on Aflac Incorporated (NYSE:AFL) in January, presenting a positive stance on life insurance stocks. The firm further mentioned that the sector will continue to show strong performance if interest rates increase further.

As of the close of Q3 2022, 34 hedge funds in Insider Monkey’s database reported owning stakes in Aflac Incorporated (NYSE:AFL), up from 32 in the previous quarter. These stakes are collectively valued at nearly $380 million. With over 1.3 million shares, Balyasny Asset Management was the company’s leading stakeholder in Q3.

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

Dividend Yield as of January 19: 2.39%

The Home Depot, Inc. (NYSE:HD) is an American home improvement company, based in Georgia. In December, Cowen raised its price target on the stock to $379 with an Outperform rating on the shares, appreciating the company’s best-in-class retail execution.

Though the housing market is going through a challenging period, The Home Depot, Inc. (NYSE:HD) continues to fare well as owners are still spending on home improvement. Moreover, in the third quarter of 2022, the company reported a 4.3% year-over-year growth in comparable sales, while its US comparable sales grew by 4.5% from the same period last year. Its revenue of $38.8 billion also showed a 5.6% growth from the prior-year period.

The Home Depot, Inc. (NYSE:HD), one of the best dividend stocks for rising interest rates, currently pays a quarterly dividend of $1.90 per share. The company maintains a 12-year streak of consistent dividend growth. The stock’s dividend yield on January 19 came in at 2.39%. It can be a good addition to dividend portfolios alongside other dividend stocks like Caterpillar Inc. (NYSE:CAT), Chevron Corporation (NYSE:CVX), and Pentair plc (NYSE:PNR).

As of the close of Q3 2022, 89 hedge funds in Insider Monkey’s database owned stakes in The Home Depot, Inc. (NYSE:HD), growing from 80 in the previous quarter. These stakes are collectively valued at over $5.6 billion.

Matrix Asset Advisors mentioned The Home Depot, Inc. (NYSE:HD) 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%.”

5. The Procter & Gamble Company (NYSE:PG)

Dividend Yield as of January 19: 2.53%

An American multinational consumer goods company, The Procter & Gamble Company (NYSE:PG) is one of the best dividend stocks for rising interest rates as the company has endured previous inflationary periods better than its peers. It continued raising its dividends during these years and its dividend growth streak stands at 66 years. The company currently pays a quarterly dividend of $0.9133 per share and has a dividend yield of 2.53%, as of January 19.

In December, Deutsche Bank raised its price target on The Procter & Gamble Company (NYSE:PG) to $162 with a Buy rating on the shares, presenting a positive stance on the consumer staples sector.

The Procter & Gamble Company (NYSE:PG) recently announced its fiscal Q2 2023 earnings and reported a 5% year-over-year growth in its organic sales. Its operating cash flow came in at $3.6 billion and its free cash flow productivity stood at 72%. The company also returned $2.2 billion to shareholders in dividends during the quarter.

As of the close of Q3 2022, 69 hedge funds tracked by Insider Monkey reported owning stakes in The Procter & Gamble Company (NYSE:PG), down from 71 in the previous quarter. The collective value of these stakes is over $4.08 billion.

Rowan Street Capital mentioned The Procter & Gamble Company (NYSE:PG) in its Q4 2022 investor letter. Here is what the firm has to say:

“Let’s look at The Procter & Gamble Company (NYSE:PG). Dividend yield is 2.4%. Earnings are forecasted to grow at 5.9%, and its current earnings multiple is at 25x. Now, lets say over the next 3-5 years the market loses interest in the “safe”, mature companies that grow at anemic rates and gets an appetite for growth again. It’s very unlikely that Mr. Market will be paying 25x for 5.9% earnings growth. Lets assume that multiple declines to the market average of 18x — that would be ~6.9% drag per year on the total expected return over next 3-5 years. If we get 2.4% (dividend) + 5.9% (earnings growth) – 6.9% (decrease in earnings multiple) = 1.4% (annual return we can expect on average from this stock).”

4. Bank of America Corporation (NYSE:BAC)

Dividend Yield as of January 19: 2.64%

Bank of America Corporation (NYSE:BAC) is a multinational investment bank and financial services company. In January, Citigroup raised its price target on the stock to $38 with a Neutral rating on the shares, following the company’s quarterly earnings. The firm also appreciated the company’s outperformance in Q4 2022.

In the fourth quarter of 2022, Bank of America Corporation (NYSE:BAC) reported revenue of $24.5 billion, which showed an 11.2% growth from the same period last year. The company is one of the best dividend stocks for higher interest rates because the yield on its current and future loans would increase due to interest rates hike.

Bank of America Corporation (NYSE:BAC) currently pays a quarterly dividend of $0.22 per share and has a dividend yield of 2.64%, as of January 19. The company holds a nine-year track record of consistent dividend growth.

At the end of Q3 2022, 97 hedge funds tracked by Insider Monkey owned investments in Bank of America Corporation (NYSE:BAC), worth over $35.6 billion collectively. Berkshire Hathaway was the company’s leading stakeholder in Q3.

Ariel Investments mentioned Bank of America Corporation (NYSE:BAC) 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.”

3. JPMorgan Chase & Co. (NYSE:JPM)

Dividend Yield as of January 19: 2.99%

JPMorgan Chase & Co. (NYSE:JPM) is another financial services company that makes it to our list of the best dividend stocks for rising interest rates. In the fourth quarter of 2022, the company reported a 48% year-over-year growth in its net interest income at $20.3 billion, which was driven by high-interest rates. Its average loans also showed a 6% growth from the same period last year.

Following the company’s recent quarterly earnings, Citigroup raised its price target on JPMorgan Chase & Co. (NYSE:JPM) in January to $165 with a Buy rating on the shares.

On December 13, JPMorgan Chase & Co. (NYSE:JPM) declared a quarterly dividend of $1.00 per share, which fell in line with its previous dividend. As of January 19, the stock has a dividend yield of 2.99%.

At the end of Q3 2022, 110 hedge funds in Insider Monkey’s database owned stakes in JPMorgan Chase & Co. (NYSE:JPM), up from 104 in the previous quarter. These stakes have a total value of over $6.4 billion. With over 7.8 million shares, Fisher Asset Management was the company’s leading stakeholder in Q3.

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

Dividend Yield as of January 19: 3.99%

Extra Space Storage Inc. (NYSE:EXR) is a Utah-based real estate investment trust company that invests in self-storage facilities. The company offers a per-share dividend of $1.50 every quarter and has a dividend yield of 3.99%, as of January 19. It has been raising its dividends consistently for the past 12 years. The company is among the best dividend stocks for rising interest rates as demand for self-storage space has increased after the pandemic.

In January, Raymond James upgraded Extra Space Storage Inc. (NYSE:EXR) to Outperform with a $170 price target. The firm noted the company’s occupancy over rate strategy during this uncertain economic condition.

As of the end of September 2022, 27 hedge funds tracked by Insider Monkey reported owning stakes in Extra Space Storage Inc. (NYSE:EXR), the same as in the previous quarter. The collective value of these stakes is roughly $148 million.

Baron Funds mentioned Extra Space Storage Inc. (NYSE:EXR) in its Q2 2022 investor letter. Here is what the firm has to say:

“Following a sharp correction in its share price during the second quarter, we acquired shares in Extra Space Storage Inc. This REIT has assembled the second-largest self-storage portfolio in the country and has the largest portfolio of third-party managed self-storage facilities. In our opinion, Extra Space’s management team is excellent. Over the last decade, management has delivered strong occupancy gains, rent growth, and expense control that has led to a cost of capital advantage relative to its peers. Management has capitalized on its cost of capital advantage by tripling its owned self-storage count since 2010. We believe the long-term growth opportunity for the company remains strong.”

1. 3M Company (NYSE:MMM)

Dividend Yield as of January 19: 4.92%

3M Company (NYSE:MMM) is an American multinational conglomerate company. It sells a wide range of products that belong to different industries which would help the company to stay afloat during interest rate hikes. Moreover, the company generated strong cash in the third quarter of 2022, with an operating cash flow of $1.5 billion and a free cash flow of $1.4 billion. Due to this, it is one of the best dividend stocks for rising interest rates.

3M Company (NYSE:MMM) has been raising its dividend consistently for the past 64 years. The company currently pays a quarterly dividend of $1.49 per share for a dividend yield of 4.92%, as of January 19.

At the end of Q3 2022, 49 hedge funds tracked by Insider Monkey reported owning stakes in 3M Company (NYSE:MMM), down from 54 in the previous quarter. The consolidated value of these stakes is over $1.45 billion.

Mayar Capital mentioned 3M Company (NYSE:MMM) in its Q2 2022 investor letter. Here is what the firm has to say:

“We also bought back into 3M (NYSE:MMM) as the stock reached attractive levels. We’d sold our shares in 3M last year when the price exceeded our estimated fair value, and as better opportunities to invest in presented themselves at the time. Nonetheless, we’ve always liked this business with its diversified revenues, its R&D leadership and its stable margins.

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Disclosure. None. 11 Best Dividend Stocks For Rising Interest Rates is originally published on Insider Monkey.