What You Need To Know About The March Rate Hike

On March 15, 2017, the United States Federal Reserve increased their benchmark interest rate by 0.25%.

This benchmark interest rate is the rate that financial institutions can lend to each other overnight. Changes to this rate affect the rest of the interest rates in the domestic economy.

This is the second rate hike in three months for the U.S. central bank, and only the third since the 2007-2009 financial crisis.

Many investors will wonder how this change in monetary policy will affect their investment portfolio.

This article will discuss what individual investors need to know about this recent rate hike, and how it will effect their investments.

The Relationship Between Interest Rates and Dividend Stocks

After the Fed’s most recent rate hike, the policy interest rate sits in the range of 0.75%-1.00%. The market widely expects that there will be two more rate hikes in 2017.

Rising interest rates affect dividend stocks in a variety of ways.

First of all, rising interest rates mean that companies with liabilities will experience an increase in interest expenses as they refinance maturing debt.

Thus, rising interest rates will hurt highly leveraged companies, and benefit conservatively financed companies. This is one of many reasons to pay attention to leverage-related financial metrics.

Two examples of conservatively leveraged companies are:

Each of the two companies listed above holds the coveted AAA credit rating from Standard & Poor’s.

There are also entire sectors that will benefit from rising interest rates due to the nature of their business models. These include:

This Sure Dividend article describes the effect of rising interest rates on these sectors in detail.

The following companies will benefit from rising interest rates because of their inclusion in one of the three sectors listed above:

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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