Higher Interest Rates Will Not Crush Dividend Stocks

Written by ContrarianOutlook.com

We hear it every single time the Federal Reserve raises rates, or even merely hints at it! “Higher interest rates will crush dividend stocks – especially high yielders.” Sounds scary – but it’s simply not true - and in this article we highlight five picks paying up to 9.2% that will prove just that.

Many high-yield dividend payers don’t care about the interest-rate boogeyman – and some actually outperform the market when the Fed lifts rates. Consider this research from index provider MSCI studying 88 years of market history up through July 2015 (emphasis mine):

“We found that, when rates were low to begin with, high-dividend stocks outperformed the market by an annualized 2.4 percentage points when rates started to go up.

On the other hand, when low rates fell under such conditions, the high-dividend stocks in our study actually lagged the market by an annualized 2.6 percentage points.”

MSCI qualified “low rates” as less than 3%. We’re of course well below that threshold right now.

1. Let’s start with a unicorn – an insurer that yields more than 4%! There aren’t many of them, but Mercury General Corp. (NYSE: MCY) breaks the mold despite being a fairly modestly sized insurance company – a $3.3 billion firm that operates primarily in California with some additional business in 10 more states.

Mercury General specializes in auto insurance, and also offers other products including homeowners and mechanical breakdown insurance (which covers repairs outside of accidents).

Insurers benefit from interest-rate hikes because they’re able to invest their premiums for more income. This is “free money” that drops directly to their bottom lines as rates head higher.

MCY is a dividend champion that has already raised its payout for 35 consecutive years. Expect more payout boosts ahead.

Mercury General (MCY) Is a Growth and Income Machine

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