US Inflation has jumped to a 6.8% increase in November, which is exceptionally high in the last two decades. The Fed hints at three rate hikes in 2022, it might benefit dividend investors to analyze their portfolio and invest in dividend stocks that protect against those high rates. The Fed also stated that the current high inflation is not considered to be transitory.
A good starting point to identify dividend stocks to consider for this high inflation rate and rising interest rates is the Fidelity Dividend ETF for Rising Rates. The main objective of this ETF is to follow the “Fidelity Dividend Index for Rising Rates”, which is designed to reflect the performance of stocks of large and mid-capitalization dividend-paying companies that are expected to continue to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields.
The Fidelity Dividend ETF For Rising Rates has an average annualized return of 14% since inception.
Top holdings include for example Apple, Pfizer, and Home Depot, and in this way, the ETF provides dividend growth stocks across various sectors. About 30% of its total fund weight is invested into the top 10 holdings, which are:
| Apple Inc | 7.39% |
|---|---|
| Microsoft Corp | 7.16% |
| UnitedHealth Group Inc | 2.46% |
| Pfizer Inc | 2.42% |
| Home Depot Inc | 2.09% |
| Johnson & Johnson | 2.06% |
| JPMorgan Chase & Co | 1.84% |
| Abbvie Inc | 1.68% |
| Bank of America Corp | 1.63% |
| Visa Inc | 1.62% |
All ten dividend stocks have the ability to grow their dividends and were able to do so during the covid period last year.
Another angle is to look at financial stocks since higher interest rates could mean an improvement in interest income for banks and higher stock prices in the end. For the top-10 list above JPMorgan Chase (JPM) is a strong dividend payer and has raised dividend payout for 11 consecutive years. The current dividend yield is 2.54% and net interest income reported in the last quarter already grew slightly.
Furthermore, we would like to highlight the dividend aristocrat Aflac (AFL) as a dividend stock to consider for the rising interest rate environment. Aflac is a diversified insurance corporation and generates profits from underwriting policies and investing in financial assets. They could also benefit from higher rates and are a strong dividend payer with a dividend yield of 2.25% and a track record of 39 years of consecutive dividend increase.
Other Sources of Dividend Investment Ideas
There are several lists to quickly screen for businesses that regularly pay rising dividends.
- The Dividend Aristocrats Index is based on 64 companies part of the S&P 500 and with 25+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of less than 20 businesses with 50+ years of consecutive dividend increases.
- The MoneyInvestExpert Defensive Aristocrats is a performance-based top-10 selection of the Dividend Aristocrats to outperform the market in the long-term.
- Portfolio lists like the Berkshire Hathaway Portfolio or Bill Gates’stock portfolio can be a source.
- For the European focused investors, there is also the list of European Dividend Aristocrats.
- Dividend Champions are not necessarily members of the S&P 500 index, have increased their dividend for 25 or more consecutive years.
- 100+ years of dividend, the list of stocks that pay over 100 years of dividend can be a list of inspiration.
- Blue Chips stocks from the US or the European ones.
Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.
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