Despite all the hand-wringing over
the beginning of the Federal Reserve interest rate increases, the fact of the
matter is they will start small, stay small and happen at a very slow
pace.
In fact, most Wall
Street strategists predict that by the end of 2017, the fed funds rate will
only be 2% at the very most. It could be even lower if economic growth slows
down between now and then.
With that scenario
very likely, solid stocks with a big yield will remain in demand. I screened
the S&P 500 index for large cap, blue chip stocks that paid a 5% dividend.
As of now, 13 stocks pay such a high yield of which 5 have also a low forward P/E and 8 a
buy or better rating.
A major worry for many yield-hungry
investors is that when the Federal Reserve begins raising the federal funds
rate, market prices for any yield-producing investment can come under pressure.
When interest rates rise, the value of an existing bond or preferred stock must
adjust itself lower so it has the same yield as a similarly rated new security.
A good advice from me is to avoid
stocks with high debt leverage like REITs. Those stocks are living from an
interest margin that could be destroyed.
Here are the large cap high-yields
from the S&P 500...