High-quality, dividend-paying stocks could bolster the fixed-income side of portfolios when interest rates start rising.

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Stephen Carlin, head of equities and managing director at CIBC Asset Management, says dividend stocks typically offer downside support when investors are skittish on bonds. He manages the Renaissance Canadian Dividend Fund.

Within Canada, which doesn’t seem to be following the Federal Reserve’s lead on interest rates, Carlin likes insurance, banking, REITs, pipelines, utilities and telecom, as well as some consumer stocks. “We see a healthy growth outlook, and attractive dividend yields, for businesses in these sectors. More importantly, we see sustainability of those dividends.”

Read: Which Canadian companies should you buy?

Canadian insurance, for example, has global growth prospects. Its exposure to the U.S, Asia and other regions will help drive business higher. In addition, insurers have diversified into wealth management. “With an aging demographic, wealth management businesses are a growth area,” he says.

Read: Which sectors benefit from low rates?

Even better, Carlin says, the market currently seems more excited about other sectors. “As a result, valuations within life insurance and banking continue to look attractive.”

Overall, Carlin focuses on companies with lower payout ratios, “because there’s a better chance the company will have the opportunity to grow its dividends over time.”


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