Goodman and Co. portfolio manager Oscar BelaicheJ.P. MOCZULSKI
Oscar Belaiche Dividend stocks have been magnets for yield-hungry investors. But there are now fears that central bankers will raise interest rates to cool inflationary pressures. We asked Oscar Belaiche, manager of the $2-billion Dynamic Equity Income Fund, how he is changing his shopping list for stocks.
What dividend plays will feel pain if rates tick up?
First, I don't see rates moving up quickly, if at all, over the next six months to a year. Normally, you have recession, recovery and growth. But we haven't really seen strong growth and the accompanying inflation that needs to be dampened by raising rates. Real estate investment trusts, as well as telecom and utility stocks, are in the interest-sensitive bucket. The concern about REITs, in particular, is that higher debt costs will squeeze cash flow.
What sectors will thrive?
Cyclical stocks, like energy, technology, industrials, financials and consumer discretionary names. In our equity income portfolio, we're looking for cash flow plus growth. We're slightly overweight cyclical stocks.
What dividend payers can weather rising rates?
We still like pipeline companies like Enbridge and TransCanada, even though they are considered defensive, because they'll benefit from continued growth due to the shale oil and gas boom. A robust economy will help Honeywell International and Walt Disney, with its theme parks, movie studios and its cable sports channel, ESPN.