Audrey Deschenes
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These dividend stocks might work best when the Fed raises interest rates

heaply valued shares with high yields are favored by PVG Asset Management

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AT&T is among five stocks with attractive dividend yields that PVG Asset Management analyst and co-founder Pat Adams calls ‘top ideas’ heading into a possible rise in official interest rates.

What will you do, as an investor, when official interest rates rise?

That question is growing in importance as the central bank’s Federal Open Market Committee (FOMC) meets this week to decide whether to increase the federal funds rate for the first time in nine years.

There’s no way to know what Federal Reserve policy makers will do. But they have kept the federal funds rate in a range of zero to 0.25% for seven years. That means the Fed’s main policy tool is tapped out.

There are plenty of good arguments for and against a rate move by the Fed, but it would be a very bad thing if the federal funds rate stayed at its current level for much longer. If the economy would slide into a recession, the central bank could only help by instituting another bond-buying program.

So the federal funds rate is going to rise. You can count on that, no matter what the Fed announces Thursday.

There’s a consensus among market analysts that the Federal Reserve’s massive balance-sheet expansion and the unprecedented period of rock-bottom short-term interest rates have propelled the six-year bull market for stocks, while also boosting other areas of the economy, such as housing.

It seems unlikely that the recovery in home construction will be radically curbed by a modest increase in short-term rates, but we could be headed for a rocky ride for stocks. Yes, when the FOMC announces a rate increase, there might be plenty of turmoil in the market, but a consistent rise in rates would put long-term pressure on stocks as other income-producing investments become more attractive.