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Why I think dividend shares are the best way to build wealth

There is an accepted economic understanding that interest rates movements will help or hinder share prices. The general rule is that if interest rates go down, then share prices go up, and if interest rates go up, then share prices go down.

This is particularly important for businesses that are slower growing and are mainly attractive for the dividend they pay.

Real estate investment trusts, infrastructure, and defensive shares could all feel the effects of rising interest rates over the coming years.

However, it’s important to not forget that as the share price goes down the trailing dividend yield will go up. Even if the potential income from cash increases, the dividend yields on some shares will look even more attractive and reflect risk better.

Shares like Rural Funds Group (ASX: RFF), Sydney Airport Holdings Ltd (ASX: SYD), Goodman Group (ASX: GMG) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (Soul Patts) would all get a 10% boost to the dividend yield if the share price fell by 10%. If that were to happen, they would all look more attractive to me, not less attractive.

Even now, Rural Funds’ trailing yield of 5.35% and Soul Patts’ grossed-up yield of 4.07% could be great choices for long-term income.

At the moment, the best type of shares to buy could be ones that offer a decent yield now, but are still growing the underlying business at a good rate to make up for any valuation pressures from interest rates.

Good examples of growing businesses with good yields could be NIB Holdings Limited’s (ASX: NHF) grossed-up dividend yield of 4.12%, Challenger Ltd’s (ASX: CGF) grossed-up yield of 3.67% and Retail Food Group Limited’s (ASX: RFG) grossed-up yield of 8.02%.

Foolish takeaway

Shares are definitely the best place to have your money invested for the long term, no matter what the interest rate, or the economy is doing. Quality companies will always shine through and investors should focus on quality first and foremost.

Dividend shares are extremely attractive in my opinion and they could get even more attractive in time.

This stock could be the perfect dividend stock for investors over the coming years with its huge yield and growth plans.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Retail Food Group Limited, RURALFUNDS STAPLED, Sydney Airport Holdings Limited, and Washington H. Soul Pattinson and Company Limited. Motley Fool contributor Tristan Harrison owns shares of Challenger Limited, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Challenger Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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