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. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Credit & Loans

    Pre-Qualified Vs. Pre-Approved - What's The Difference?

    These terms may sound the same, but they mean very different things for homebuyers.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  5. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  6. Fundamental Analysis

    Using Decision Trees In Finance

    A decision tree provides a comprehensive framework to review the alternative scenarios and consequences a decision may lead to.
  7. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  8. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  9. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  10. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  1. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  2. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

You May Also Like

Trading Center