Everybody across the stock and bond markets breathed a huge sigh of relief when the consumer and producer price index numbers for June were released. The reality is that those great prints were largely due to plummeting gasoline prices, as the U.S. and Iran had temporarily halted hostilities under a signed memorandum of understanding. Now, after a stretch that recently included 10 straight bombing attacks on Iran, and despite the Iranian foreign ministry saying that discussions could continue, it looks like President Trump is prepared to go for the knockout punch. Regardless of the outcome, the Bank of America team argues that inflation is still well above the Federal Reserve’s target and that the right move is to start raising rates soon.
In a recent research report, the Bank of America’s Global Research Bureau of Economic Analysis team said this:
In our latest US economic weekly, we argued that the Federal Reserve should resume raising rates rather than remain on hold. A key pillar of our view is that underlying inflation remains meaningfully above the Fed’s 2% target. To be sure, June core PCE at 3.3% y/y (our estimate) likely overstates underlying inflation because it reflects several temporary or idiosyncratic factors. If we, however, exclude these influences, core PCE would still be 2.5% and little changed from a year ago. In our view, the combination of persistently elevated core inflation and a stable, if not improving, labor market argues for tighter monetary policy rather than an extended pause.
Before the June break in the fighting and the tumbling energy prices, in May, the energy shock we may experience again had driven inflation higher, with the CPI rising 4.2%, the sharpest increase in three years and well above the Fed’s 2% target. That in turn prompted lenders to demand higher rates to protect returns. Meanwhile, investors are selling bonds once again amid rising inflation and concerns about U.S. debt, lifting Treasury yields. Since mortgage rates are based on the 10-year Treasury yield plus a risk premium, they rose in tandem. On the fiscal side, federal interest payments now exceed spending on Medicaid, national defense, and all nondefense discretionary programs combined, adding further upward pressure on long-term borrowing costs. Experts say rates will only fall if geopolitical tensions ease, oil prices stabilize, and inflation remains under control, outcomes that remain uncertain at best.
Typically, when interest rates go higher, these four sectors tend to win:
- Financials
- Energy
- Healthcare
- Industrials
We screened our 24/7 Wall St. dividend stocks database for quality companies that pay big, dependable dividends and generate reliable passive income. We found four companies, one in each sector, that are solid bets if the upward trend in interest rates remains. All are rated Buy by the top Wall Street firms we cover.
Financials
Financials are the biggest winner. Banks earn a wider spread between what they pay depositors and what they charge borrowers. Insurers earn more on their investment portfolios. The sector almost mechanically benefits from rising rates, as net interest income rises.
Based in Minneapolis, super-regional financial giant U.S. Bancorp (NYSE:USB | USB Price Prediction) is an outstanding choice for growth and income investors now, offering a hefty 3.29% dividend. The financial services holding company’s segments are:
- Wealth
- Corporate
- Commercial and Institutional Banking
- Consumer and Business Banking
- Payment Services
- Treasury and Corporate Support
It offers a comprehensive range of financial services, including lending and deposit services, cash management, capital markets, and trust and investment management services. It also engages in credit card services, merchant and ATM processing, mortgage banking, insurance, brokerage, and leasing.
The company’s banking subsidiary, U.S. Bank National Association (USBNA), is engaged in the banking business, principally in domestic markets. USBNA provides a range of products and services to individuals, businesses, institutional organizations, governmental entities, and other financial institutions.
The non-banking subsidiaries offer investment and insurance products to customers primarily within their domestic markets, as well as fund administration services to a range of mutual and other funds.
Oppenheimer has an Outperform rating with a target price of $77.
Energy
Energy benefits because rate hikes typically coincide with inflation, and oil/gas prices are a primary driver of inflation. Higher commodity prices mean higher revenues. It is the inflation hedge play, and it has been the strongest-performing S&P sector so far in 2026.
Enterprise Products Partners (NYSE:EPD) is an American midstream natural gas and crude oil pipeline company headquartered in Houston, Texas. This company is one of the most extensive publicly traded energy partnerships, paying a very reliable 5.87% dividend. Its debt-to-EBITDA ratio ranges from 3.1x to 3.4x, which is moderate for a midstream energy company, and its interest coverage ratio is 5x.
The company generates strong free cash flow, with an operating cash flow of approximately $8.8 billion, resulting in approximately $4.2 billion in free cash flow annually after deducting capital expenditures. Another significant benefit for shareholders is that most of the corporate debt is fixed-rate, thereby limiting the risk of rising interest rates.
Its various midstream energy services include:
- Gathering
- Processing
- Transporting and storing natural gas, natural gas liquids (NGL), and fractionation
- Import and export terminalling
- Offshore production platform services
The company has four reportable business segments:
- Natural Gas Pipelines and Services
- NGL Pipelines and Services
- Petrochemical Services
- Crude Oil Pipelines and Services
One reason many analysts like the stock might be its distribution coverage ratio. The company’s coverage ratio is well above 1x, making it relatively less risky among the MLPs.
UBS has a Buy rating with a $45 target price.
Healthcare
Pricing power and steady demand insulate the top healthcare names. They don’t directly benefit from higher rates, but they tend to hold up well because their earnings do not erode as much as those of interest-sensitive sectors.
Bristol Myers Squibb (NYSE:BMY) is a global biopharmaceutical company. This remains a solid pharmaceutical stock to own for the long term, offering an outstanding entry point and a reliable 4.12% dividend. The company is committed to discovering, developing, and delivering transformative medicines for patients with serious diseases across oncology, hematology, immunology, cardiovascular disease, neuroscience, and other therapeutic areas.
Its platforms comprise chemically synthesized or small-molecule drugs, including protein degraders, as well as biologics produced through biological processes. These platforms also encompass ADCs, CAR-T cell therapies, and radiopharmaceutical therapeutics.
Small-molecule drugs are typically administered orally in tablet or capsule form, although other drug-delivery mechanisms are also used. Biologics are usually administered by injection or intravenous infusion. CAR-T cell therapies are administered by intravenous infusion.
Its growth portfolio includes:
- Opdivo
- Opdivo Qvantig
- Orencia
- Yervoy
- Reblozyl
- Opdualag
The legacy portfolio includes:
- Eliquis
- Revlimid
- Pomalyst/Imnovid
- Sprycel
- Abraxane
Bank of America has a Buy rating with a $66 price objective.
Industrials
Industrial stocks often perform well in rising-rate environments because rate hikes can signal a strengthening and expanding economy. As businesses ramp up activity, demand for heavy equipment, machinery, and manufacturing capacity increases. This allows these cyclical companies to secure stronger order books and exercise greater pricing power, more than enough to offset their higher cost of capital.
Stanley Black & Decker (NYSE:SWK) is the world’s largest tool company, with 50 manufacturing facilities in the United States and more than 100 worldwide, and shares trade at 13.5 times forward earnings estimates. With the potential for the economy to slow down somewhat, you can bet that the do-it-yourself legions will fix rather than buy new, and this legendary stock is a solid idea now, while yielding a large 3.8% dividend.
The company provides hand tools, power tools, outdoor products, and related accessories in the United States, Canada, Other Americas, Europe, and Asia. Its Tools & Outdoor segment offers professional-grade corded and cordless electric power tools and equipment, including:
- Drills
- Impact wrenches and drivers
- Grinders, saws, routers, and sanders
- Pneumatic tools and fasteners, such as nail guns, nails, staplers and staples, and concrete and masonry anchors; corded and cordless electric power tools
- Hand-held vacuums, paint tools, and cleaning appliances
- Leveling and layout tools, planes, hammers, demolition tools, clamps, vises, knives, saws, chisels, and industrial and automotive tools
- Drill bits, screwdriver bits, router bits, abrasives, saw blades, and threading products
- Toolboxes, sawhorses, metal cabinets, and engineered storage solutions
- Electric and gas-powered lawn and garden products
This segment sells its products under brand names including:
- Dewalt
- Craftsman
- Black+Decker
- Stanley
- Flex Volt
- Irwin
- Lenox
The Industrial segment provides:
- Threaded fasteners, blind rivets and tools, blind inserts and tools
- Drawn arc weld studs and systems
- Engineered plastic and mechanical fasteners
- Self-piercing riveting systems
- Precision nut running systems
- Micro fasteners
- High-strength structural fasteners
- Axle swage, latches, heat shields, pins, couplings, fittings, and other engineered products
- Attachments used on excavators and handheld tools
The segment sells its products through a direct sales force and third-party distributors to various industries, including automotive, manufacturing, electronics, construction, aerospace, and others.
Barclays has an Overweight rating and a $95 price target.
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