3 Cash-Rich Dividend Stocks to Fight Rising Rates

The United States Federal Reserve has just made the biggest interest rate hike since 1994 to counteract inflation that has been at very high levels for four decades, which has led to entering a bear market.

As investors scramble to find a place to store their money, one option is to take refuge in cash-rich companies that pay steady dividends. In addition to providing a secure stream of income, these stocks tend to fare better in prolonged economic downturns.

Industries that typically do well in such an environment include healthcare, defense, retail, and mega-caps.

One place to look for this type of stock is the so-called Dividend Aristocrats Index. The group includes S&P 500 stocks that have increased their payouts for at least 25 consecutive years. In times of market volatility, investors tend to turn to these reliable payers.

Here are three cash-rich, dividend-paying stocks from the group that you might consider adding to your income portfolio:

1.Target (NYSE:)

The biggest concern when choosing a dividend-bearing security for a long-term portfolio is whether the company can produce strong cash flows in good times and bad. Minneapolis-based retailer Target certainly fits this criteria. The shares closed Tuesday at $144.70.

Description: TGT Weekly Chart

The company has increased its dividend steadily every year for the past 50 years, a period that includes the dot-com crash of the early 2000s, the financial crisis of 2008-2009, and the COVID-19 pandemic of the year past. Its latest dividend hike came earlier this month, when the retailer raised its quarterly payout by 20% to $1.08 a share.

Target’s current stock price is a good entry point for long-term investors who want to set their dividend yield above 3%. Shares have lost more than a third of their value this year on concerns that sales and profit margins will shrink as inflation curbs consumer spending.

In our opinion, this period of uncertainty will not last long. Analysts believe Target will shed the current booking glut for August and return to solid profitability during critical back-to-school and holiday sales seasons. In addition, the retailer has a solid balance sheet, strong cash flows and a manageable payout ratio.

2. Abbott Laboratories (NYSE:)

Like retailers, healthcare stocks can provide a steady and growing stream of income even when the going gets tough. This is because its services remain crucial to society regardless of the macroeconomic environment. In addition, economic fluctuations do not usually stop the launch of new drugs and medical devices.

In this space, we like Abbott Laboratories, a manufacturer of medical devices, generic drugs, and nutritional products. The Illinois-based company has been paying annual dividends for nearly half a century, making it a solid name to have in your portfolio. Abbott shares closed Tuesday at $104.41.

Description: ABT Weekly Chart

Description: ABT Weekly Chart

During the pandemic, Abbott has seen its diagnostic test sales boom after inventing BinaxNOW, an over-the-counter home testing device for the COVID-19 virus that brought in billions in additional sales.

Yet even after the brunt of the COVID pandemic, Abbott’s growth prospects remain bright. The company has a diversified portfolio, manufacturing everything from glucose monitors to surgical instruments. Demand for these products is constant, generating constant free cash flow and dividend income for investors.

Abbott shares have weakened 25% this year. Still, the healthcare provider has delivered an impressive performance over the last five years, with a profit of more than 100%, including dividends.

The company pays a quarterly dividend of $0.47 per share, with an annual return of 1.83%. The payment has increased more than 11% each year for the past five years.

3.Visa (NYSE:)

The global pandemic has forced many companies to cut or suspend their dividends, creating more uncertainty for investors seeking income. Still, many companies have continued their dividend-paying streak, thanks to their long-standing businesses and strong cash-generating capacity.

One such company is payment giant Visa, which has continued to increase its payments despite economic turmoil. Visa closed Tuesday at $194.39.

Description: V Weekly Chart

Description: V Weekly Chart

If one were to judge the stock by its paltry 0.79% return, it would not seem like an attractive choice in terms of dividends. But that does not offer a complete picture.

Visa’s payout ratio is 22%—quite sustainable—giving the company more room to increase future payouts. In the last five years alone, the company’s dividend has increased by an average of 20% each year. This makes it a great buy and hold stock for your portfolio.

The company should also get a boost from higher spending on travel and leisure after the pandemic. Chief Financial Officer Vasant Prabhu told Bloomberg in a recent interview:

“We see the affluent consumer spending heavily again, especially on travel, restaurants and leisure. The affluent consumer had cut back quite a bit during the pandemic, not because they couldn’t afford it, but because they couldn’t go outside. The affluent consumer is back now to stay”.