5 Dividend Growth Stocks To Counter Low Rates

In the first half of May, investors braced themselves for a rate hike this month following upbeat comments from some Fed officials and encouraging economic data. But the situation reversed after the release of the jobs data last week, which showed that the economy generated significantly lower-than-expected jobs in May. Meanwhile, the Fed Chairperson Janet Yellen failed to provide any significant clue to the timing of the next rate hike.

This indication that low rates might prevail in the coming days calls for an investing strategy that can provide steady returns even in this low-rate environment. While dividend investing can be considered a way out, stocks with strong dividend growth potential may lead to greater returns when the rates are low.

Discouraging Labor Data for May

May’s discouraging labor data played an important role in lowering chances of a rate hike in the Federal Open Market Committee’s (FOMC) policy meeting next week. According to the Bureau of Labor Statistics (BLS), the U.S. economy created a total of only 38,000 jobs in May, significantly lower than the consensus estimate of 203,000.  Nonfarm payrolls witnessed their lowest increase since Sep 2010. The tally was also considerably lower than April’s downwardly revised job number of 123,000. Moreover, the Labor Department revised jobs additions downward for March by 22,000.

Meanwhile, the labor force participation rate fell 62.6%, as 458,000 individuals quit jobs or gave up job searches. This was primarily behind the decline in the unemployment rate to 4.7% in May, which is the lowest level since Nov 2007 and lower than the consensus estimate of 4.9% and April’s rate of 5%. 

Decreasing Prospects of June Hike

Yellen maintained a cautious tone regarding the pace of rate hikes and said that if the Fed “were to raise interest rates too steeply” and “were to contribute to a downturn,” then it would have “limited scope for responding.” Though Yellen said that most of the U.S. economic data has been encouraging following which the Fed will increase rates this year, she did not provide any clue to the timing of the hike.

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