Dividend growers beat the market during times of rising rates, BMO says

Published Sun, Mar 14 20219:01 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The quick climb for interest rates doesn't mean that investors have to abandon dividend paying stocks, according to BMO chief investment strategist Brian Belski. The benchmark 10-year Treasury yield set another 52-week high on Friday , rising as high as 1.64%. That may be unnerving to some investors who hold dividend stocks, whose payouts look less attractive as bond yields rise. However, history shows that dividend payers who constantly raise their payouts outperform the broader market and other dividend stocks during periods of rising rates, Belski said in a note to clients. "Our work shows that a strategy geared more toward dividend growth has produced an attractive risk and return profile over the longer term, and has also outperformed yield-only strategies and the broader market during periods of rising interest rates," the note said. "In addition, dividend growth historically has been able to mitigate losses during price declines, yet has also participated in the upside during market strength." Belski noted that dividend growers are typically stocks that do well when the economy is accelerating, making them a good fit for the cyclical rotation that has been dominating the market in recent weeks. "We recommend that investors acquire at least some exposure to dividend growth names within their portfolios in the coming months, especially given their attractive quality and stability attributes and cyclical tilt," the note said. BMO put together a list of dividend growers that includes stocks with no dividend cuts in the past five years, one-year dividend growth rate greater than the S & P 500 and a dividend yield above the S & P 500, among other criteria. The stocks listed below also have outperform ratings from BMO analysts. Two food stocks that made the list are Tyson Foods and Mondelez International . Mondelez has been consistently raising its per share payout at least once per year since 2013, while Tyson's has increased 200% since 2016. Both stocks also have dividend yields above 2%. Among the outperform-rated stocks, the one with the highest dividend yield is biotech company Amgen at 3.1%. The company announced earlier this month that its next divided payout would increase 16 cents to $1.76 per share, continuing a decade-long trend of dividend hikes. The best performing stock in 2021 on the list is consulting firm Robert Half . Shares of the company have jumped 25.5% in less than three months and still have a dividend yield of nearly 2%, according to FactSet. On the other hand, two materials stocks on the list have sputtered to start the year. Shares of PPG Industries are up just 0.8% year to date, while those for agricultural company FMC Corp . are down 4.2%.

An employee opens a bottle of PPG clearcoat coating liquid ahead of a paintwork demonstration inside PPG Industries Inc.'s automotive coating's technical center in Ingersheim, Germany.

Krisztian Bocsi | Bloomberg | Getty Images

The quick climb for interest rates doesn't mean that investors have to abandon dividend paying stocks, according to BMO chief investment strategist Brian Belski.

The benchmark 10-year Treasury yield set another 52-week high on Friday, rising as high as 1.64%. That may be unnerving to some investors who hold dividend stocks, whose payouts look less attractive as bond yields rise.