The Threat And Risk Of Rising Interest Rates: Separating Fact From Fiction

Additional Individual Stock Examples

For additional insight, I offer several additional examples of blue-chip Dividend Aristocrats to illustrate that the relationship between interest rates and P/E ratios is not always neat and tidy. As you evaluate each of the examples, take note of the differences in operating results and historical valuations on each. Interest rates do play a role in every case. However, there are other factors that also come into play and at times can be the dominant factors.

Valuation levels are the critical element to be aware of. The reason I bring this up is because low interest rates have contributed to a high level of demand for blue-chip dividend-paying stocks. Consequently, valuations on most of the best-of-breed dividend growth stocks have become historically high as illustrated in the examples below. Moreover, the moral of the story is that these overvalued Aristocrats might be the most sensitive to rising rates if they do manifest in the future.

McDonald’s Corporation (NYSE:MCD)

Procter & Gamble Co (NYSE:PG)