Conventional wisdom dictates that high-dividend stocks and the related exchange traded funds are often vulnerable to rising interest rates. However, just because the wisdom is conventional doesn’t mean it’s always accurate.

The prevailing thought is that high-dividend sectors often display bond-like traits, and when interest rates rise, pushing up yields on conservative Treasuries, investors find that debt more appealing than riskier equities. However, that line of thinking is shifting, indicating that the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) could be a valid consideration for income investors even as the Federal Reserve heads toward boosting borrowing costs.

The $3.14 billion SPHD follows the S&P 500 Low Volatility High Dividend Index, a collection of the S&P 500 members with the lowest trailing 12-month volatility and highest dividend yields. That combination turns up big allocations to bond-like equity sectors, but that might be already happening in this rate-hiking environment.

“Crucially, high yielding equities no longer trade like bond proxies, as in the past, and now exhibit positive correlations with changes in bond yields. This is important as it means that high equity dividend yield stocks can outperform, even as bond yields rise. So far this year, like the wider value trade, high dividend yield stocks have outperformed,” writes Bernstein strategist Mark Diver in a Monday note to clients.

In other words, simply because SPHD allocates nearly 29% of its combined weight to the utilities and real estate sector, that doesn’t mean the ETF is going to wither as interest rates rise. Plus, it also pays to consider that those sectors aren’t the only ones with the high-dividend label, and some of the others with that branding are ideally suited for a climate of Fed tightening.

“In recent years value stocks and high yielding stocks have tended to be dominated by Financials and other cyclically sensitive sectors such as Energy and Materials. … These sectors are particularly well positioned to profit from the uptick in economic growth as the pandemic recovery continues,” adds Bernstein’s Diver.

Those three sectors combine for about 19.5% of SPHD’s weight, according to Invesco data. Add to that, about 88% of the fund’s 49 holdings are classified as value stocks.

Bernstein presents investors with several dividend-paying stocks in the high-yield camp that could thrive as rates climb. Those include Altria (NYSE:MO), Chevron (NYSE:CVX), International Business Machines (NYSE:IBM), Hasbro (NYSE:HAS), and 3M (NYSE:MMM). Each member of that quintet is a member of the SPHD lineup.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.