Interest Rates May Explode in 2022: 5 Dividend Stocks That Can Thrive Next Year

Investing

Published: December 10, 2021 7:37 am

Last Updated: December 10, 2021 12:15 pm

The writing has been on the wall for some time. Federal Reserve Chair Jay Powell let Pandora out of the interest rate box when he finally noted that the term “transitory” inflation needs to be retired. Faced with mounting inflation data, some of which is the worst in over 30 years, he and the rest of the Fed governors have been painted into a corner of their own making and most likely will have to raise interest rates next year, and likely faster than expected.

In addition, the pace of quantitative easing tapering also is expected to accelerate. Typically, rising interest rates are bad for many sectors, as borrowing costs for companies are increased. Yet, certain companies in specific silos can actually benefit from rising rates. We found five that make sense for growth and income investors looking to be ready for the increases. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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Ares Capital

This is a favorite business development company across Wall Street. Ares Capital Corp. (NASDAQ: ARCC) is a leading specialty finance company that provides one-stop debt and equity financing solutions to U.S. middle-market companies, venture capital-backed businesses and power-generation projects.

Ares Capital originates and invests in senior secured loans, mezzanine debt and, to a lesser extent, equity investments through its national direct origination platform. The company’s investment objective is to generate both current income and capital appreciation through debt and equity investments primarily in private companies.

Top Wall Street analysts believe the strength of the company’s origination platform, sizable balance sheet and ample liquidity position it favorably in a very competitive investing environment. Some believe that with the current tight spread environment Ares Capital has the scale and industry relationships to continue to make competitive, high-credit-quality investments. Plus, with interest rates expected to move higher, they could supply higher coupon loans.

Investors in Ares Capital stock receive a 7.92% dividend. Citigroup has a Buy rating and a $23 price target. The consensus target is $21.27, and the stock closed on Thursday at $20.69.