When the Fed made its statement last week that it saw two rate hikes by the end of 2023, dividend investors were caught off guard to some degree and a number of high-yielding stocks were sent plunging. For a number of years now, income investors have been desperately seeking decent yields from different sources as bond interest rates have been incredibly low.

This long period of low-interest rates has caused an increase in equity investments where the yield was deemed worthy of the risk. Now that the Fed is signaling that rates will start rising in the next few years, the attraction of the high yields provided by some stocks will dwindle.

A few days after the Fed's announcement, I was contacted by a reporter from a Finnish business newspaper. The reporter wanted my take on what the change in the rate policy would mean for stocks known for their consistent dividend payments. The reporter's name is Hellevi Mauno and she had put together a list of 64 stocks that she called dividend aristocrats. Obviously the term "dividend aristocrat" has been used before, but I've seen a number of different lists where the stocks included vary to some degree. Regardless of the stocks included, I gave Hellevi my opinion on how I felt dividend investors should move forward with their investment strategy.

In my opinion, there are some stocks where the biggest attraction, and in some cases the only attraction, is the dividend yield. Those stocks will likely see the worst-selling of the dividend payers. Utilities stocks are kind of in their own class, so I wouldn't worry about them falling too far. For me, I looked through the 64 stocks that Hellevi sent over and I found four stocks that pay a solid dividend, are known for increasing the dividend and have seen solid earnings and revenue growth. Those are the stocks that I feel will fare the best— a combination of a growth orientation and a decent yield as well.

I actually wrote about one of the stocks that made the cut last week, Abbott Laboratories (ABT). The other three stocks that got my attention were Lowe's (LOW), Medtronic (MDT), and Target (TGT). I used Investor's Business Daily's EPS Ratings and SMR Ratings in order to come up with my preliminary list and then I ran the stocks through Tickeron's Screener. From there I looked at the charts for the stocks to make sure I liked the look of the chart. Was the stock trending higher, was it overbought, things of that nature.

The Fundamentals are Strong for the Group

Looking at the Scorecard from Tickeron we see that Lowe's is rated a "strong buy" and the other three have "buy" ratings. Don't confuse these ratings with traditional ratings. These ratings are based on artificial intelligence and use a combination of fundamental and technical factors in determining the rating. We see that all four stocks have far more positive marks than negative marks on the FA Score. The same can be said about the technical analysis factors. Target has two bullish technical indicators and one bearish one while the other three stocks have multiple bullish signals and zero bearish signals.

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Looking more closely at the fundamental indicators, we see that all four stocks score well in the Valuation Rating. Three of the four score well in the Profit vs. Risk Rating, but Medtronic gets the worst possible score in the category. Target and Lowe's both get great marks in the SMR Rating.

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The only area where we see the majority of these four stocks score poorly is the P/E Growth Rating. Target and Lowe's get below-average marks in the Outlook Ratings.

Looking at the current yields for these four stocks, Medtronic's is the highest at 2.04%. The yield on Lowe's is 1.69%, Abbott yields 1.64%, and Target's yield is 1.52%. While these yields aren't tremendously high, but with rates on Treasuries being so low, those yields seem far more attractive.

Rising Rates Will Have a Negative Effect on the Price of Bonds

The idea of the Fed bumping interest rates a few times in the next two years doesn't seem like a huge deal, but with the 10-Year Treasury only yielding 1.5% at this time. Two rate hikes would only raise the Fed Funds rate to a target range of 0.5% to 0.75%, but that will likely cause a greater increase in the long-term rates. When new bonds are issued that could be yielding over 2.0%, the previously issued bonds will drop in value in order to match the current yields. This could create a capital loss should investors have to sell at the time.

This is why I believe the four stocks I've listed in this article are much better long-term options. In addition to having slightly higher yields than the 10-year Treasury, the upside potential for the stocks is tremendously better than the bonds. The combination of yield and possible gains makes the stocks far more attractive in my book.

Yes there are other stocks with higher dividends that could work out well in the long run, but in my opinion, investors have to weigh the combination of factors—the yield, the potential capital gains, the risk of more downward selling pressure, etc. Considering all of those factors, I think Abbott, Lowe's, Medtronic, and Target are all pretty solid choices for investors looking for decent dividends with a considerable amount of upside potential as well.