[Edaily Reporter Kim Kyung-eun ] Analysts have predicted that so-called “quality stocks” may become more attractive to investors amid rising interest rates. They recommend focusing on dividend-paying stocks with stable earnings and cash flow, as well as financial stocks such as banks and insurance companies.

Kang Song-cheol, an analyst at EUGENE INVESTMENT & SECURITIES, stated in a report on the 3rd, “Quality stocks are those with strong cash flow and substantial cash reserves, backed by stable earnings.” The analysis suggests that companies that increase dividends annually or maintain high dividend yields often share these characteristics.

EUGENE INVESTMENT & SECURITIES identified stocks that: △ have increased dividends for two consecutive years through last year; △ have shown a favorable earnings trend recently without significant valuation pressures; and △ offer a dividend yield of 4% or higher based on current stock prices. As a result, six stocks met these criteria: ORION Holdings(001800), SLCORPORATION(005850), HANKOOK TIRE & TECHNOLOGY(161390), DaouTechnology(023590), POSCO INTERNATIONAL(047050), and KIWOOM Securities(039490).

As of the 1st, ORION Holdings had the highest dividend yield at 6.5%. This was followed by SLCORPORATION at 5.2%, HANKOOK TIRE & TECHNOLOGY at 4.7%, DaouTechnology at 4.6%, POSCO INTERNATIONAL at 4.5%, and KIWOOM Securities at 4.1%. The current dividend yields for these stocks rank in the 93rd to 99th percentile compared to historical levels.

This trend is also supported by earnings performance. The year-over-year growth rate of combined profits for the most recent four quarters, as of the second quarter of this year, was 21% for SLCORPORATION, 18% for ORION Holdings, 41% for HANKOOK TIRE & TECHNOLOGY, 88% for DaouTechnology, 29% for POSCO INTERNATIONAL, and 109% for KIWOOM Securities.

Analyst Kang explained, “Quality stocks have an advantage in a high-interest-rate environment,” adding, “When market volatility increases, we can expect downside support from the appeal of dividends.”

He suggested financial stocks as an alternative. An analysis of the returns of domestically listed exchange-traded funds (ETFs) over the past three months showed that financial ETFs—such as those focused on banks and insurance—ranked among the top performers. Based on closing prices on the 1st, the three-month returns for both “KODEX Bank” and “KODEX Insurance” stood at 15.2%. This contrasts with the KOSPI, which fell 22% over the same period. “SOL Financial Holdings Plus High Dividend” and “TIGER Bank High Dividend Plus TOP 10” also rose by 12.4% and 11.4%, respectively.

Analyst Kang stated, “The fact that financial stocks are rising during a period of rising interest rates indicates that the economic situation is favorable,” adding, “This suggests that the burden of rising interest rates may be less severe.” He explained that if financial stocks maintain their strength despite rising interest rates, it means the market is absorbing the interest rate burden; however, if financial stocks turn weak amid rising interest rates, it could be a negative signal for the economy or the stock market, and investors should remain vigilant.