Experts: Buy These Dividend Stocks Before A Fed Rate Hike

With the Federal Reserve’s decision on interest rates just days away, traders are still trying to determine the best way to position their portfolios ahead of a possible September rate hike. In a new report, HSBC analyst Volker Borghoff explained why dividend stocks are the best way to go.

Unique Cycle

There is a fear in the market that rising interest rates could pose a threat to high-yielding dividend (HYD) stocks because they offer the prospect of safer fixed-income returns for investors. However, Borghoff pointed out that this particular tightening cycle might not see the same substantial move in long-end rates that past cycles have seen.

He added that HYD stocks have underperformed the market for more than two years now. “Low growth and superior value characteristics are other positive factors in this environment,” Borghoff explained.

Related Link: ProShares Adds To Dividend Growth Lineup With Europe ETF

Projections

HSBC is not expecting an interest rate hike this week. The firm is calling for the first hike to come in December of this year. Regardless of the timing, Borghoff sees the first rate hike as neutral to slightly positive for HYD stocks.

Top Picks

The report included a list of preferred stocks that currently demonstrate all the characteristics that HSBC likes to see when it comes to dividend plays. The firm projects that Hong Kong and Emerging Markets HYD stocks will be the biggest beneficiaries from the first hike.

HSBC named Freeport-McMoRan Inc FCX, Noble Corp plc NE, Copa Holdings, S.A. CPA and PBF Energy Inc PBF as top picks.

Disclosure: The author holds no positions in the stocks mentioned.