Income investors will always be in a quandary over whether to purchase fixed income securities such as t-bills and bonds, or to buy stocks with competitive yields. And, indeed, there are a great many factors that should be weighed before making any such decision.

IN PICTURES: 20 Tools For Building Up Your Portfolio

One of those factors is the prevailing interest rate climate, an influence that will bear strongly on the principal value of any fixed income product - and on preferred shares. When interest rates are rising, the principal value of a bond falls. And while that's fine for those planning to hold their bonds until maturity, for those who want to leave their options open, rising rates could wreak havoc on a portfolio's bottom line.

Only solid-yielding common shares stand to rise in an era of mild inflation or prosperity that is accompanied by rising interest rates.

For those who believe that rates are currently poised to rise, here are three strong, dividend-yielding candidates with great franchises and a strong recent performance for consideration. (Learn about issues that may complicate dividends for investors in our article Dividend Facts You May Not Know.)

Dutch Treat
Koninklijke Philips Electronics NV (NYSE:PHG) is an Amsterdam-based conglomerate better known to Americans as Philips Electronics. With three principal areas of operation, including healthcare, lighting and consumer lifestyle products, the company has developed into one of the oldest and most secure franchises in the world.

Philips has a market cap in excess of $22 billion and pays an annual 3.89% dividend. The shares have appreciated by over 50% in the last six months, yet they still carry very competitive fundamentals. Price-to-book is just 1.15 and price-to-sales a lowly 0.63.

Rated a "Buy"
Portugal Telecom SGPS (NYSE:PT) trades with a P/E of 11.59x last year's earnings and yields a very healthy 7.09%. The shares are up nearly 100% from its 52-week low and have a market capitalization of nearly $9.5 billion.

PT recently received a strong rating from analysts at ING Group who reported that "PT's earnings are strong... it can grow revenue over the medium term." ING concluded by rating Portugal Telecom a "buy".

Nokia (NYSE:NOK) is $55 billion company whose shares are up 75% since hitting 52-week lows in March of this year. The shares yield 3.6% annually and have a P/E of 17.6. Nokia is a manufacturer of mobile communications devices and is an internet service provider.

The Wrap
In a rising interest rate environment that accompanies economic recoveries, stocks generally outperform bonds. Those stocks that pay investors a healthy and safe dividend while they appreciate make for the best of both worlds - income and capital appreciation.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing Basics

    Explaining Options Contracts

    Options contracts grant the owner the right to buy or sell shares of a security in the future at a given price.
  2. Home & Auto

    When Are Rent-to-Own Homes a Good Idea?

    Lease now and pay later can work – for a select few.
  3. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  8. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  9. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Derivative

    A security with a price that is dependent upon or derived from ...
  3. Security

    A financial instrument that represents an ownership position ...
  4. Series 6

    A securities license entitling the holder to register as a limited ...
  5. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  6. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!