“When interest rates rise quickly, it tends to be negative for the stock market,” he said. “When that happens, investors generally prefer low beta companies that are more defensive.” He added that defensive stocks are also often dividend payers.
According to Matt Quinlan, portfolio manager in Franklin Templeton’s equities unit, dividend stocks’ source of income will be alluring if market volatility persists.
Quinlan emphasized that dividend stocks have broadened their focus recently to include sectors including healthcare, banking, and telecommunications in addition to their traditional blue-chip businesses. Financial, industrial, and tech companies have also jumped on the dividend-paying bandwagon.
Even if the economy experiences a recession in 2023, Clissold believed that dividend stocks will remain a wise investment.
Because dividend reductions typically rise sharply during recessions, he stressed: “What becomes very critical at this point, though, is [finding companies whose] dividends are not going to be cut.”
