First the good news… the U.S. economy is on solid ground. Unemployment is very low at just 4.1%, and wages are starting to rise. This is great for U.S. consumers, but the downside is that the strength of the economy is likely to bring inflation. The biggest problem with rising inflation is that it could force the Federal Reserve to lift rates quicker than previously expected.
The Fed has already started to lift rates, after years of near-zero rates during and following the financial crisis, but the fear now is that it will start to lift rates quicker than expected, which in turn would result in money flowing out of the stock market and back into more traditional fixed income assets.
At the start of the year, most market watchers were anticipating upwards of three rate hikes during the current year, but now it appears as if three rates are a given, with a high likelihood of a fourth occurring before the year ends.
Even if rates do rise four times during the year, they will remain very low on an historical basis, but they will start to entice investors to sell some dividend stocks, which have been very strong during the years of near-zero rates.
Some dividend stocks will get hit more than others, and some will probably avoid any selling all together. While no one can see the future to predict which stocks will and will not take a hit, there are some stocks that appear able to withstand the rate hikes that are likely to occur during the year.
Here are five dividend stocks that can likely shrug off rising interest rates.