Rising rates will underscore need for dividend growth
- Joyce Gordon
- Porfolio counselor
- Based in:
- Los Angeles office
- Investment experience:
JOYCE GORDON: We have been spending a lot of time thinking about what rising interest rates mean to our portfolios. It makes holding bonds less attractive. It probably makes holding real estate and real estate investment trusts less attractive. And some of the high-yielding stocks that don’t have the dividend growth to go along with it are probably less appealing; they probably get dinged a little bit.
So I’ve been focusing the portfolio on companies with dividend growth, because companies that are growing their dividends tend to do better during those time periods when we see rising rates. It also says something about growing earnings in the company and management’s willingness to share capital with shareholders, which probably means that they’re less likely to do a lot of big mergers and acquisitions, which have a checkered history of whether they work out well for shareholders.
So all of those things lead me in a direction on what types of companies I’d like to invest in, but again, I really look at it company by company, bottom up. It makes banks a little more interesting, too, because interest rates have been at such a low level that it’s been very difficult for the banks to earn a decent margin. As interest rates move up — when we get up to a more reasonable level on interest rates — banks might be more interesting.
I think that the area that we’re going to see growth in dividends is going to be tech, and we’ve seen a lot of tech companies increasing dividends.
Dividends are one piece of the puzzle, and rising dividends are terrific when we can find them. But we also need to see that there’s some value left in the company, that it’s not trading so expensively that there’s no room left for price appreciation. So we really try to get a balance of good current yield — I like growing dividends — and some participation in the market.
- U.S. stocks showing strength
- Divided Europe holds investment opportunities, risks
- Dividend culture abroad holds hope for higher yield
- Rising rates will underscore need for dividend growth
- Emerging markets slump doesn’t derail long-term outlook