Why I'd Still Buy This 10%-Yielding Dividend Stock After the Fed's Latest Hike
2026-09-27 19:34
•Matt Dilallo •The Motley Fool
•••••• • Axe Cap view
Why a 10% Dividend Yielder Can Still Make Sense Amid Rising Rates
Rising US interest rates pressure dividend stocks, but select floating-rate plays weather storms well.
The US Federal Reserve’s recent rate hike is making life tougher for dividend stocks that lock in fixed income. But companies like Ares Capital, which holds about 70% of its investments in floating-rate debt, stand to benefit. As rates rise, the interest on those loans resets higher, boosting income streams and supporting dividend payouts. This kind of resilience is rare, with Ares delivering stable and growing dividends for 17 years across different Fed tightening cycles. While this doesn't map perfectly to the JSE, it’s a useful cautionary tale for local income seekers to watch out for credit instruments exposed to variable rates. South African banks like Standard Bank and FirstRand will also feel the pinch or gain from rising rates, but they don’t offer the same dividend yield or floating-rate leverage. If the US enters a sharper slowdown or defaults spike, floating-rate debt could suffer more than expected, making this a risk worth weighing. this is just our opinion and not financial advice
Avoid chasing high dividend yields on fixed-rate stocks in this rising rate cycle. Instead, watch quality banks on the JSE for improving net interest margins, but stick to larger names like Standard Bank or FirstRand. Use USD/ZAR moves to gauge broader risk appetite.
- USD/ZAR
- Standard Bank
- US economic slowdown hurting credit quality
- Rand volatility amplifying local earnings pressure
6/10
The Federal Reserve raised rates by 25 basis points with more hikes expected, creating headwinds for high-yield dividend stocks. However, Ares Capital (ARCC), yielding over 10%, could benefit from rising rates since 71% of its investment portfolio is in floating-rate debt, which generates more income as rates rise. The company has a 17-year track record of maintaining stable and growing dividends through previous rate-hike cycles, making it an attractive buying opportunity despite near-term stock price pressure.
Our take is based on reporting first published by The Motley Fool.