Dividend Strategies in a High-Rate Environment

The end of the TINA era

For nearly a decade, TINA ruled — There Is No Alternative to stocks. With zero rates, even mediocre dividend yields were attractive. 2026 is a different world: cash earns a risk-free 4%+.

That forces dividend investors to reassess.

When are dividends still attractive?

For a dividend strategy to make sense today, at least two of the following criteria should be met:

1. Dividend yield clearly above 4% — otherwise Treasuries beat the risk/return profile

2. Dividend growth above 5% p.a. (compounder effect)

3. Low payout ratio (<60%, dividend safety)

4. High free cash flow relative to market cap

The three schools of strategy

### A) High current yield

Classic REITs, MLPs, BDCs, some telecoms. Currently often 6-9% dividend yield, but little to no growth and higher drawdown risk.

### B) Dividend growth (compounders)

Classics: Microsoft, Visa, Mastercard, S&P Global, Costco. Starting yield often only 1-2%, but double-digit annual dividend growth over decades. True wealth building.

### C) Hybrid

Mid-yield with moderate growth: Coca-Cola, J&J, Pepsi, Mondelez, McDonald's. 2.5-3.5% starting yield, 5-8% growth. "Defensive compounders."

What smart money is doing

In 13F data we see:

• Adding to energy dividend payers (Chevron, Exxon)
• Trimming telecoms with fragile balance sheets
• Steady holding of classic compounders

Risks in this environment

• Dividend trap: Very high yields are often a warning sign (see AT&T, Intel in recent years)
• Refinancing pressure: Highly leveraged dividend payers suffer from higher rates
• Tax friction: Dividends are taxed higher than capital gains in many jurisdictions

My bottom line

Dividends remain a core pillar of long-term wealth building — but quality beats yield. Better 2.5% from a compounder growing 10% annually than 8% from a structurally shrinking business.