In this past Friday’s editorial, TradeSmith wrote about the possibility of interest rates continuing to rise. If rates do move up, many interest-sensitive investments would probably move lower in price. But there’s one group that might not be hurt.
TradeSmith dropped a clue to this group’s identity in an editorial written in early July. He wrote “Stocks that have a history of increasing their dividends could do well in an environment of rising rates.”
In the article, he highlighted the Vanguard Dividend Appreciation ETF (VIG). This ETF invests in stocks that have a history of increasing their dividends. VIG triggered a new Stock State Indicator (SSI) Entry signal in March 2016, and it’s been climbing higher ever since.
VIG came close to touching the SSI Yellow Zone in early November 2016, but never entered it. In the past year, it has gained over 16% and it has a dividend yield of just under 2%. The Volatility Quotient (VQ) for VIG is a very low 9.2%.
The top 10 holdings of VIG make up almost 32% of the total fund. The names on here don’t normally make the headlines. They tend to be considered conservative, even boring stocks. We’ve sorted this list by each stock’s Volatility Quotient (VQ). Seven of the ten stocks have VQs under 15%. In the TradeStops world, that means they’re considered to be low risk.
The other three stocks have their VQs barely above 15% which is where the medium risk stocks begin.
Only one of the stocks is in the SSI Red Zone, and only one is in the SSI Yellow Zone. The others are in the SSI Green Zone, and some have been there for a long time.
The Asset Allocation breakdown of these 10 stocks shows that there’s an overweighting in Industrial stocks. The ETF itself has over 32% allocated to the Industrials sector and less than 10% in Technology, Financials, and Basic Materials. The allocation to Energy stocks is 0%.
Many TradeStops members are interested in income-producing stocks. Obviously, we don’t know each member’s financial situation, and we do not make any recommendations. Just as baskets of stocks carry risks, individual stocks contain risks as well.
Stocks with a history of increasing dividends tend to be financially-sound stocks that have weathered difficult financial conditions in the past. They could continue to do well if interest rates continue to increase.
As always, be sure to do your own analysis before buying any stock or fund for your personal portfolios.
Tom Meyer
Education Director, TradeStops
