A Smarter Dividend Strategy

"Dividends are a good long-term theme," says Russ Koesterich, chief investment strategist at BlackRock Inc. BLK +0.50% But, he adds, changing conditions just mean investors will have to look a little harder for opportunities. The Federal Reserve in the past two months has made statements indicating it plans to begin unwinding its massive bond-purchasing program, perhaps later this year. That's why dividend stocks stumbled in May and June, and why investors can expect more volatility should Treasury yields continue on an upward trajectory.

Here are strategies and suggestions from market professionals who argue there is still room for growth in the right kinds of dividend stocks: For starters, some say, avoid the highest-yielding stocks. Focus on companies in sectors closely tied to economic health and whose earnings and dividend payouts are growing. Cyclical stocks have been the market's best performers during lengthy periods of rising rates. A climate of higher rates will challenge more than just individual investors. Many mutual-fund managers and other investing professionals have never experienced a prolonged stretch of rising yields, and not all will rise to the occasion.

Source: Wall Street Journal

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