Dividend stock investing is a popular topic among the crowd shooting for passive income. I developed a speculative portfolio with a mix of dividend stocks that have performed reasonably well with the recent rising interest rate environment. Historically, I play with dividend funds such and Vanguard’s dividend growth fund VDIGX They do well over varying time horizons and I feel positive seeing a regular income stream.
The view on dividend stocks in a rising interest rate environment seems to be positive. Morningstar rising interest rates impact on dividend stocks
Usually there are no free rides. Its difficult to compare high yield dividend stocks with their equivalent yielding counterparts in fixed income. Almost any product with higher yield compared to “safe” product yields will carry higher risks. Although I tried to get a mix of different dividend stocks, I put in a bit more on real estate funds which cater to the US government as a tenant. I also put money into companies that run infrastructure such as pipelines that deliver oil products in North America. Their dividend payout history is steady over long periods of time.
Initially, you might think that dividend stocks may behave similarly to bonds in a rising rate environment. But I feel that good dividend stocks payouts will keep up with inflation because they have pricing power. This means that the company’s dividend should at least keep up with inflation. However, the stock price will still vary just like any other equities investment. If you do not need capital preservation in short term, you can focus on the dividend payout. If you need to sell the stock in a short term horizon, you probably need more thought on whether dividend stocks are the right choice. My hypothesis is that dividend stocks behave similarly to real estate as an inflation hedge.