Kevin Warsh's Fed May Not Cut Rates Soon. That's Why This Dividend Stock Belongs in Your Portfolio.

Kevin Warsh's Federal Open Market Committee (FOMC) has its next meeting on Oct. 28 to decide on a course of action for interest rates. It looks as if they aren't coming down anytime soon.

According to the CME Group's proprietary FedWatch tool, which tracks the chances of future changes in the effective federal funds rate, the Fed probably won't hike rates on Oct. 28. But as of Oct. 17, the FedWatch tool predicted an 89% chance of a rate hike for the Fed's December meeting.

We might not be at the start of a prolonged Fed rate hike cycle. Warsh and the FOMC might only raise rates by another 0.25% or 0.5% by the end of the year. But in recent months, longer-term bond yields have been rising. If you're concerned about the effects of higher rates on your stock portfolio, now might be a good time to look at stocks that tend to hold up better in a rising rate environment.

One of the best dividend stocks to consider is AbbVie (NYSE: ABBV). This leading pharma stock has a long-term track record of raising its dividend and delivering strong growth for investors. Let's look at why AbbVie could be a good stock to buy now to protect your portfolio from rising interest rates.

Fed chair Kevin Warsh. Image source: Federal Reserve.

ABBV: a Dividend King with 18.8% annualized returns over 10 years

AbbVie develops and sells well-known pharmaceuticals like Skyrizi, Rinvoq, Humira, and Botox. Over the past 10 years, ABBV stock has delivered annualized returns of about 18.8%, strongly outperforming the S&P 500 index. This pharma stock has done even better in the past few years, with average annual returns of 23.7% over the past five years and 28.9% over the past year.

The drugmaker also pays strong, steady dividends. The stock is a Dividend King, with more than 50 years of history of increasing its payout to investors. AbbVie became an independent company in 2013 after a spinoff from Abbott Laboratories, but AbbVie retained (and has continued) the former parent company's long-term dividend streak. In 2026, AbbVie paid total dividends of $6.92 ($1.73 per quarter). Its forward annual dividend yield is 2.42%.

Why ABBV is a good stock when rates are rising

There are a few reasons why AbbVie could be a great choice for your portfolio if interest rates remain high or continue rising.

First, higher interest rates tend to be worse for stocks of companies with a lot of floating-rate debt. When interest rates go up, those companies often struggle to refinance their debts. AbbVie investors shouldn't worry about this risk; this company has a strong balance sheet, and AbbVie's debt of $70.8 billion is only 14% of the company's $504 billion market cap. And most of AbbVie's debt is in fixed-rate senior notes.

Another reason AbbVie stock could be resilient in a higher-rate environment is the nature of the pharmaceutical industry. When people need medical treatment, they tend to go get it -- whether interest rates are high or not. Successful pharmaceuticals are not rate-sensitive in the way that consumer discretionary purchases might be. Past performance doesn't guarantee future results. But here's how ABBV performed in 2022 during the most recent Fed rate hike cycle:

ABBV Total Return Level data by YCharts

And perhaps here's a simple but underrated reason why now is a good time to buy ABBV: It's not connected to the artificial intelligence (AI) trade. Some investors are getting nervous about AI stocks and the large amounts of debt that companies are issuing to build AI data centers. AbbVie is in an industry sector that is totally separate from AI. If you want to diversify against a possible sell-off in AI stocks, ABBV and other healthcare stocks could put your money to work in a different part of the economy.

Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, and CME Group. The Motley Fool has a disclosure policy.