A Slow And Steady 6% Dividend Yield Can Win Lots Of Races

In this environment of rising rate expectations, however, the more favored dividend strategy is to invest in companies with the potential to increase their dividend, not necessarily those companies with the highest dividend. The dividend growth strategy makes sense in a rising rate environment because it could be viewed like a floating rate bond, where the dividend payout increases along with rates, just like a floating rate bond would increase its coupon as rates rise.

A stable dividend not expected to grow is more comparable with a fixed-rate bond and tends to decline in price as rates rise, just like fixed-rate bonds. Stocks particularly at risk are those whose dividend is not high enough to compare favorably with other high-yielding securities (either fixed income or equities), and those whose dividend is unsustainably high, as evidenced by a high payout ratio. A happy compromise is to find a company with an above-average dividend yield, a modest dividend payout ratio, and low-to-moderate dividend growth. One such company is AT&T (NYSE:T).

Source: Seeking Alpha

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