Interest rate hikes tend to negatively affect stocks in general. This is because stocks are typically seen as higher risk compared to other investments such as bonds or GICs.

When the interest rate increases, some investors rotate out of stocks and into interest-producing investments that have lower risk.

The interest rate reported by the Bank of Canada has been in a downtrend for the past 25 years. During that time, it hit a high of 16% in 1991 and a low of 0.25% in 2009.

With a potential rate hike from the Fed soon, Canadian investors may be fearing that Canada will follow soon after, especially since the interest rate is at the low end of historical levels.

Which dividend stocks are best for countering interest rate hikes?

Cheap dividend stocks

Businesses that are priced at a discount already have a margin of safety. However, we’re assuming that the following businesses are temporarily mispriced and that they will trade at normal historical levels again in the future.

For example, Dream Office Real Estate Investment Trst (TSX:D.UN) is priced at $20 per unit with a yield of 11.2%. Further, its book value is $33.6, so it is discounted by 40.5%.

Thus, the REIT is an income play with the potential for price appreciation. REITs own real estate properties that should hold up in value and have a strong ability to generate income in the form of rent.

High dividend-growth stocks

High-growth stocks are companies that grow earnings or cash flows at a rate of over 10% per year on a per-share basis. That growth allows these businesses to grow dividends at a high rate as well. So, the businesses in this category should also have a track record of growing dividends.

The idea is that these stocks grow at a much higher rate than interest rate hikes.

Although Enbridge Inc.’s (TSX:ENB)(NYSE:ENB) stock price hasn’t done so well lately, it generated more than enough operating cash flow to cover dividends with leftovers in the third quarter of 2015. The business reaffirms its forecast of 14-16% annual dividend per-share growth through 2019.

In my opinion, Enbridge is a high-growth opportunity that’s also priced cheaply after the price decline due to lower commodity prices. According to its normal multiple, its fair price should be around $63. So, it’s discounted by about 20% compared with historical levels.

In conclusion

Investors should look for discounted dividend stocks such as Dream Office or high-growth dividend stocks such as Enbridge to counter any interest rate hikes that might come. Whether the rates are hiked or remain constant, you can enjoy the dividends that roll in.

Our TOP turnaround stock for 2015

When tech companies fall from grace like this Canadian icon did, it's typically impossible to regain relevance. Here at Motley Fool Canada, we think this company and its CEO are prepared to prove all of the doubters wrong. We have even named it one TOP turnaround stock for 2015. Will you be left on the outside looking in should our intuition come to fruition?

If you're a curious soul (like me), then you can download the name, ticker symbol, and price guidance absolutely FREE.

Simply click here to receive your Special FREE Report, "A Top Turnaround Stock Idea for 2015."

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!

Enter your email address below to claim your copy of this brand new report, “Breakthrough IPO Receives Rare Endorsement.”

Fool contributor Kay Ng owns shares of Dream Office and Enbridge, Inc. (USA).