Dividend stocks reap rewards from rate hikes

Despite a potential rise in US interest rates, income oriented equity investors can still access a high level of income and return, according to SPDR ETFs State Street Global Advisors (SSGA) Australia.

Head of SPDR ETFs, Shaun Parkin, found there was a compelling case for global portfolios to hold relatively stable and defensive high dividend stocks.

Taking the SPDR S&P global dividend fund (WDIV) as an example, he said it tracked the S&P global dividend Aristrocrat Index and held about 22 per cent in US stocks, as well as utilites, US REITs, telecoms, consumer discretionary, energy, financials and industrial companies.

"Additionally, as bond yields were low, income-oriented investors were attracted to stable, high yields that companies in such sectors tended to generate," Parkin said.

Compared to bonds, many US high dividend stocks still looked attractive from a pure yield valuation perspective, Parkin said.

US stocks yielded 5.2 per cent on average, and they increased on the back of central bank moves. Meanwhile, South African stocks yielded 5.9 per cent, and they too increased for the same reasons, while they made up 8.7 per cent of the portfolio, Parkin said.

The United Kingdom's stocks in the portfolio yielded 5.4 per cent and they made up 9.9 per cent, while Canadian stocks yielded 4.3 per cent and made up 19.5 per cent of the fund.

Although the market was not anticipating a rate hike in the US in November, it expected a hike in December.

"This would come as a relief to income-oriented investors and US stocks can breathe again, at least until December," Parkin said.