Buy these dividend expanders while the Fed is hiking, Trivariate Research says

Published Sun, Feb 13 20229:00 AM EST

With investors bracing for higher interest rates this year, Trivariate Research shared the best way to trade dividend stocks and which types of shares to buy. "We decided to look in detail at dividend-related strategies given the massive shift in the perception about the path of interest rates," Adam Parker, former Morgan Stanley chief U.S. equity strategist and founder of Trivariate Research, said in a note this past week. Expectations are rising for the Federal Reserve's rate hike plan this year. Some economists anticipate the Fed will hike interest rates by a half point in March. Others, like economists at Goldman Sachs, s ee as many as seven quarter-point hikes for this year. A dividend is a regular payout of a portion of a company's profits to its shareholders. In the past, during rapid moves in rates, dividend stocks have sometimes come under pressure as bonds are seen as competition to their payouts. However, that conventional wisdom could be breaking down as the types of stocks that qualify as high yield has changed and the gap between yields of stocks and bonds has widened. "The timing is particularly good to investigate dividend as a strategy today given the pending Fed lift-off, and importantly, with valuation dispersion very wide among the dividend yielding stocks (signaling potential opportunity)," Parker said. Trivariate analysis found the market rewards companies initiating a dividend and those expanding their payouts. In fact, a basket of dividend-expanding stocks has outperformed the firm's hyper-growth cohort since 2010. "Investors may not realize the sustained excellence of this investment approach," Parker said. Trivariate found the names with a high yield and expanding dividends. Take a look at five of their picks. Ally Financial and Blackstone are among the stocks on Trivariate's list. Financial stocks tend to outperform during times of rising rates because the cost of borrowing rises, which can boost firms' profit. Amgen is another high-yield dividend expander Trivariate highlighted. The stock is outperforming the market this year, up more than 1% in 2022 compared with the S & P 500's 7% loss. Also making the list are retail stock American Eagle Outfitters and home appliance maker Whirlpool . —CNBC's Michael Bloom contributed reporting.

Robert Galbraith | Reuters

With investors bracing for higher interest rates this year, Trivariate Research shared the best way to trade dividend stocks and which types of shares to buy.