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Negative interest rates: two dividend stocks I’ve bought to earn 3%

Edward Sheldon, CFA
·3-min read
Two hands holding champagne glasses toasting each other with Paris in the background
Two hands holding champagne glasses toasting each other with Paris in the background

Recently, there’s been a great deal of talk about negative interest rates. A lot of people are worried. Negative rates will make it even harder to build wealth.

Personally, I’m not too concerned about negative interest rates. Why? I simply don’t keep a lot of my wealth in cash savings. Sure, I keep a little bit of cash on hand for liquidity and emergencies. However, the rest of my money goes into assets that have the potential to generate strong, above-inflation returns and help me build long-term wealth.

Dividend stocks are one asset class I invest in. These pay me income on a regular basis. This income is generally far higher than the income I’d receive if I put that money in the bank. An added bonus is that there’s the potential for capital growth too. With that in mind, here’s a look at two shares I’ve bought to shield myself from negative interest rates.

Dividend stocks: protection from negative interest rates

One of my core dividend stock holdings is Unilever (LSE: ULVR). It’s a leading consumer goods company that owns a wide range of food and drink, home care, and personal care brands. Most people are familiar with Unilever’s brands. They include Dove, Persil, and Hellmann’s.

Unilever has a great record when it comes to paying out dividends to investors. It’s paid out regular dividends for decades. Last year, it paid investors about 143p per share. At the current share price, that equates to a yield of about 3.2%. That’s about three times the best rates on savings accounts right now. And it’s a lot higher than we’re likely to get from the banks if we see negative interest rates.

Unilever is well positioned for growth over the long term. This is due to the fact that more than 50% of its sales are generated in emerging markets. As incomes rise in these regions over the next decade, sales should increase. This means that Unilever could potentially provide me with some attractive capital gains in the years ahead, alongside my dividends.

Dividends and capital growth

Another dividend stock I’ve bought for protection against negative interest rates is Reckitt Benckiser (LSE: RB). It’s a consumer goods company with a focus on health and hygiene. Brands in its portfolio includes the likes of Nurofen, Dettol, and Mucinex.

Reckitt Benckiser also has a strong long-term dividend track record. Last year, it paid its investors 174.6p per share. At the current share price, that equates to a yield of about 2.6%. In a world of negative rates, I think that kind of yield is attractive.

I see a lot of investment appeal in Reckitt Benckiser at present. That’s because, as a result of Covid-19, the world has become far more focused on hygiene. This is boosting the company’s sales.

I expect this increased focus on hygiene to persist for at least a few years. “The signs are that the crisis is leading to a longer-term behaviour shift with consumers demanding reassurance that workplaces, shops and public transport are germ-free,” Hargreaves Lansdown analyst Susannah Streeter said recently. Analysts at Bernstein believe that Covid-19 will change consumer habits permanently.

Overall, there’s a lot I like about Reckitt Benckiser. With a yield of 2.6% on offer, I see the stock as a good hedge against negative interest rates.

The post Negative interest rates: two dividend stocks I’ve bought to earn 3% appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Unilever, Reckitt Benckiser, and Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020