Great Dividend Stocks For High Interest Rates

Interest rates are making headlines in the financial world.

In particular, rates have climbed even higher.

The yield on the 10-year Treasury bond hit over 5.3% last week and is at its highest level since 2002.

Why are interest rates climbing so much?

Inflation has started creeping higher, and the best tool for fighting inflation is higher interest rates.

Higher interest rates were definitely not in the cards at the start of the year, with many experts expecting rates to decline in 2026.

But the opposite has happened.

And these dividend stocks look very interesting in a high interest rate environment.

Hercules Capital (ticker: HTGC) is a business development company (BDC) with an incredible 11.5% dividend yield.

BDCs are required to distribute at least 90% of their income as dividends to avoid tax penalties from the IRS, which is why their dividend yields are so high.

BDCs like Hercules Capital make money by lending money to small businesses.

When interest rates rise, Hercules Capital’s profit goes up because it charges more interest on its loans.

As of last July, almost 98% of the loans Hercules Capital issued were floating-rate, which means the interest it charges can rise or fall.

And most of Hercules Capital’s debt is fixed.

So, when interest rates rise, Hercules Capital is raking it in.

In the last 5 years, net investment income for Hercules Capital has more than doubled because of higher interest rates.

And despite the growth in income, Hercules Capital is trading at a nice discount.

Its current price-to-earnings (P/E) ratio of 8.4x is below its historical average ratio of 11x.

T. Rowe Price Group (ticker: TROW) is one of the top asset managers in the world.

As of last quarter, T. Rowe Price managed over $1.8 trillion in assets for its clients.

It’s also an excellent dividend stock with 40 straight years of dividend growth coupled with an amazing 5.1% dividend yield.

How can high interest rates help an asset manager?

Well, T. Rowe Price barely carries any debt.

The company carries about $500 million in debt, which is nothing compared to the more than $15 billion in assets on its balance sheet.

Having very little debt means high interest rates barely impact the asset manager since its interest expense is already so low.

And T. Rowe Price’s return on equity (ROE) of 20% is one of the highest among asset managers, which shows it’s very efficient at generating profit for its investors.

Lastly, a somewhat contrarian pick in Realty Income (ticker: O) looks compelling at its current price.

Realty Income is a real estate investment trust (REIT) specializing in retail locations.

The REIT owns small retail spots and leases out the properties to retailers to sell their products.

High interest rates are bad news for REITs since they have so much debt.

The higher interest expense eats into Realty Income’s profits, which has resulted in its stock price dropping more than 15% over the past 3 months.

But the discount gives us a great opportunity to lock in an excellent dividend yield.

Realty Income’s current dividend yield is just under 6%, hovering near a 15-year high.

Additionally, the REIT pays a dividend every month and has raised its dividend for 22 straight years.

And despite higher interest rates, Realty Income’s funds from operations per share has risen almost 50% over the past decade.

What dividend stocks are you looking at with rising interest rates?

Michael Jennings

Dividend Stocks Research