"When Cold Winds Blow, OO Stocks"... 10 Sectors to Watch Amid Rising Rates [Weekend Money]

As the end of the year approaches, the traditional dividend-investing season is drawing near. Recent high interest rates and companies’ adoption of quarterly and interim dividends have spread dividend payments across the year. However, year-end dividends still account for the largest share among major listed companies, making the period from December through March of the following year an ideal time to invest in dividend stocks.

In a report, NH Investment & Securities analyst Ahn Jaemin said, "Rising interest rates have made dividend yields alone less attractive than bonds. However, companies that actively return capital to shareholders remain attractive investments because investors can benefit from both dividend income and capital gains."

As the government's Value-Up Program and capital market reform policies gather momentum, domestic companies are increasingly stepping up shareholder returns. Institutional frameworks to enhance shareholder value—including separate taxation of dividend income, mandatory cancellation of treasury shares, and directors’ duty of loyalty to shareholders—are being put in place, and listed companies’ payout ratios and cash dividend amounts continue to rise.

Recent interest rate increases have made dividend yields alone less attractive than bonds compared with the past, but companies that actively return capital to shareholders remain attractive investments, analysts say. Ahn said, "Higher dividends and treasury share cancellations not only provide stable cash flows but also lead to improved return on equity (ROE) and higher valuations, creating the potential for capital gains as well. Rather than focusing on interest rate levels themselves, investors should focus on companies that can sustain predictable shareholder returns on the back of solid earnings and strong cash generation."

NH Investment & Securities identified 10 sectors with distinctive appeal during the dividend season and amid the medium- to long-term expansion of shareholder returns: semiconductors; banks; insurance; securities; telecommunications services; media; retail and food and beverages; consumer staples; automobiles; and transportation. Ahn said, "With their solid fundamentals and cash-generating capacity, these sectors are expected to offer investors both dividend income and capital gains."

The semiconductor sector is expected to drive earnings growth and shareholder returns alike, led by Samsung Electronics and SK hynix, which have established themselves as global leaders. Banks and insurers, traditional dividend favorites, are among the main beneficiaries of a high-interest-rate environment and offer attractive dividends backed by stable cash flows. The recent share price correction has also made the securities sector's dividends more appealing.

Telecommunications services and media, industries that have entered a mature phase, focus on profitability and stability rather than aggressive expansion, giving them strong appeal as dividend plays. Retail and food and beverage companies are also drawing interest as they actively strengthen shareholder return policies in response to recent demands from shareholders.

Consumer staples companies may see both earnings growth and higher dividends, supported by the spread of K-culture. The automobile sector stands out for maintaining a solid total shareholder return (TSR) of around 35%, despite actively investing in future growth drivers such as robotics and autonomous driving. Finally, in the transportation sector, higher freight rates amid geopolitical conflicts and the fallout from wars directly translate into improved earnings, raising expectations for higher dividends as profits grow.

This content was produced with the assistance of AI translation services.