There's plenty of uncertainty in the market in 2022, but S&P/ASX 200 Index (ASX: XJO) dividend shares could be a saving grace.
The coming years will likely see above-trend economic growth and higher inflation, according to Epoch Global Equity Shareholder Yield portfolio manager, John Tobin.
And while plenty of investors might turn to growth stocks to buoy their portfolios in the near future, the expert is betting on dividend shares.
Here's why the fundie thinks established dividend-paying stocks are worth looking at right now.
Why is this fundie bullish on dividend shares?
According to Tobin, investing in established, dividend-paying shares has been "out of favour" in recent years.
However, long-duration stocks – those delivering strong yields such as dividends, free cash flow, and buybacks – might be about to have a moment of "salvation". Tobin commented:
The view that we have at Epoch is that interest rates are at an inflexion point and from here they are likely to go up. The reasons for that are pretty straightforward – we see above trend economic growth around the world.
Tobin points out that stocks with high dividend yields have previously been found to outperform the market during periods when rates are rising.
"For many that's a surprising and counter intuitive," Tobin said. "We tend to think the dividend stocks are probably going to get hurt by rising rates.
"The evidence suggests the opposite."
Tobin also noted that, between 1994 and 2019, the biggest annual return on the MSCI World Index was seen in stocks with growing dividends.
However, that's flipped in recent years and the largest returns have come from non-dividend paying shares.
"What this is telling us is, longer duration equities (growth stocks) were out performers in a period of artificially low interest rates," Tobin said.
"Our argument is long duration stocks are going to face stronger headwinds when rates rise."
Which ASX 200 dividend shares could benefit from rate rises?
According to Tobin, shares with growing dividends could benefit most from rising interest rates.
Such shares include the ASX 200's National Australia Bank Ltd. (ASX: NAB).
As The Motley Fool Australia recently reported, the big bank is expected to grow its dividends this financial year.
Bell Potter believes it will hand out dividends worth 132.5 cents per share in the financial year 2022. That is predicted to grow to 134.5 cents in the financial year 2023.
Renowned ASX 200 dividend stock Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) could fit Tobin's brief.
According to my Foolish colleague Tristan Harrison, Soul Patts has grown its dividends every year since 2000. Additionally, it hasn't missed an annual dividend since it listed in 1903.
