Mortgage rates are rising, ditto for long-term Treasury yields. From historic low levels, interest rates probably have nowhere to go but up, especially when the Fed boosts short-term rates from near-zero.
Where should advisors direct clients in the search for investment success as yields rise? Money manager Lord Abbett suggested that investors should consider the stocks of dividend-growing companies. In a recent post on its website, Lord Abbett featured data from Ned Davis Research dating back to 1972, covering seven periods of escalating rates. In the three years after the initial Fed rate hike, dividend growers in the S&P 500 gained over 35%, on average, while dividend nonpayers gained less than 15%. Today, Lord Abbett investment strategist Steve Lipper pointed out, payout ratios are low while cash reserves are high, indicating dividend growth is likely.
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