Dividend Stocks Worth the Risk of Higher Interest Rates

Interest rates will likely rise at some point, but that's no reason to abandon dividend stocks, says Josh Peters, director of equity-income strategy for Morningstar research firm. "Mentally you have to be willing to accept more interest-rate risk in a high-income strategy than you would have with perhaps a more speculative strategy," he says on Morningstar.com."I think it's a good trade-off because, yes, I take more interest-rate risk when I own lots of utilities, lots of food stocks, companies that don't respond a great deal one way or the other to changes in economic activity. But I get a 2-for-1 bargain."

While dividend stocks entail interest-rate risk, they carry less economic growth-risk than more speculative stocks, Peters says. "If there's a recession my stocks stand to hold up much better than the S&P 500 index, for example. And I also get the benefit of the income," he notes. You don't have that if you go off into other areas of the market where dividend yields are very low or nonexistent."

Source: Money News

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