3 Dividend-Paying Turnaround Stocks: Annaly Capital, Antero Midstream, And Tanger Factory Outlet Centers

NYSE: NLY | Annaly Capital Management Inc  News, Ratings, and Charts

When looking at stocks that will benefit from the economy reopening, investors shouldn’t overlook certain dividend-paying stocks. Yes, they are negatively affected by rising rates but those in the right sectors will still have upside such as AM, NLY, and SKT.

Dividend-paying stocks face a major headwind in this current climate due to rising long-term interest rates. In August, the yield on the 10-year hit 0.5%, while the stock market was making new, all-time highs.

Earlier this week, the 10-year Treasury yield hit a high of 1.19%. This rebound in rates is primarily due to expectations that growth will accelerate in the second half of 2021. The move has also been supported by election outcomes which favor larger amounts of fiscal stimulus in the coming months. Higher deficits increase the supply of Treasuries which puts upward pressure on rates.

Dividend stocks tend to underperform during periods of rising rates as their income streams become marginally less attractive. A dividend payment of 4% is more appealing when interest rates are at 0.5% rather than 3.5%. 

Characteristics of Dividend Outperformers

This doesn’t mean that investors should disregard all dividend stocks, but it does mean they should be more judicious when making selections and manage risk more carefully. Certain dividend stocks are likely to keep outperforming despite rising rates.

Investors should look at sectors that will benefit from these economic and financial conditions. A shorthand is to look at the last period in which we had rising rates, high deficits, and dovish monetary policy – this would be the bull market from 2003 to 2008 – which followed the dot-com bubble.

During this period, hard assets outperformed. Value stocks also did well, while growth stocks underperformed. Other outperformers included real estate, financials, energy, materials, and industrial stocks. Income-oriented investors should look to those sectors to find dividend stocks as increases in earnings will offset the headwind of rising rates. Three dividend stocks in this category are  Annaly Capital (NLY - Get Rating), Antero Midstream (AM - Get Rating), and Tanger Factory Outlet Centers (SKT - Get Rating).

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