The real world often makes Swiss cheese out of theory. That could be the case for some income investors’ favorite high-yield stocks, which are having a difficult time in an unforgiving market.

In theory, the highest-yielding equities should be able to stave off competition from fixed-income securities once rates start to rise.

After all, it would take quite a run-up in rates for bonds to become more attractive than high-yield stocks, especially since rates will be rising gradually from a historic low.

But as we’ve seen with the so-called Taper Tantrum in 2013 and the correction in utilities this year, the market can be indiscriminate when it applies conventional wisdom to dividend stocks.

The conventional wisdom, of course, is that dividend stocks perform poorly in a rising-rate environment. However, history shows that isn’t the case, at least if you can afford to reinvest your dividends.

A landmark study published by Ned Davis Research found that dividend stocks outperformed non-dividend payers on a total-return basis in the three types of rising-rate environments it examined. Companies that grew their dividends–a major focus of Canadian Edge’s methodology–did even better.

And while investors who pushed dividend stocks to dizzying new heights without regard to fundamentals are now dumping them in the same manner, that won’t always be the case.

A rising-rate environment will pose new challenges for companies, and that will force investors to start differentiating between them on a fundamental basis again.

For instance, many high yielders have taken advantage of the low cost of capital since the downturn to grow their empires. They’ve also used retail investors’ seemingly insatiable demand for yield to make a number of secondary equity issuances, diluting the stake of existing shareholders.

With borrowing costs set to rise, some high-yield stocks will have to pivot from growth-via-acquisition to organic growth. But that transition won’t always be easy.

Case in point: Student Transportation Inc. (NSDQ: STB, TSX: STB)

With a yield that’s averaged 8.5% over the past five years, Student Transportation boasts some hardcore income-hungry devotees among its shareholders.

But since hitting a trailing five-year high in mid-February, its TSX-listed shares have fallen nearly 20%. The drop in its U.S. listing has been deeper and even more protracted, owing to the decline in the Canadian dollar.

In the latest issue of Canadian Edge, we reviewed the possible reasons behind the stock’s selloff. In the absence of any real news, we could only speculate on the cause.

However, this article also prompted a subscriber to inquire about the company’s plans for organic growth, particularly on the non-asset side.

With a fleet of roughly 12,000 vehicles, it can get pretty expensive running the third-largest school bus company in North America.

Until recently, Student Transportation had been pursuing a consolidation strategy in what is still a highly fragmented market. But that approach has yet to lead to the sort of efficiencies that translate into enduring growth.

Now the company hopes to find long-term growth by shifting more and more to a non-asset model.

That can involve a number of areas, including going from being an owner of the buses it operates to entering into managed contracts, where school districts own the buses and pay for fuel and other major expenses, while Student Transportation operates and manages the fleet. At present, however, just 5% of the company’s fleet operates under such contracts.

But over the past year, the company has gotten much more serious about offering these types of services, with the launch of its Transportation Sector Consultants division and the hiring of a chief growth officer to oversee the expansion of this business and other non-asset ventures.

In fact, the most forward-thinking of these initiatives is SafeStop, a mobile app that allows parents to track their kids’ commute home in real time.

The SafeStop app only just launched during the past school year, so its contribution to revenue does not appear to be all that meaningful at this point.

Indeed, it’s difficult to tell precisely how much revenue the app is expected to generate in full-year fiscal 2015, which ends June 30. The company’s segment reporting isn’t especially detailed, nor are there any references to the app in recent financials.

On its Feb. 12 earnings call, management reported that SafeStop was live on about 300 buses, with another 700 coming up.

At the same time, it also acknowledged that the total contribution to revenue from its non-asset business, which probably includes SafeStop, will be just $4 million to $5 million for this fiscal year.

So far, at least nine school districts in different states in the U.S. have signed up for SafeStop, or have it included as part of their contract, along with three individual schools and one university (for its student shuttle).

But the potential market for this app is huge, and has positive implications for the company’s transition from growth via acquisition to a more organic growth model.

STB currently serves about 1 million children in 375 school districts across North America.

And there are a total of 36 million parents in North America whose students ride the bus. So STB may have a significant opportunity beyond its existing customer base.

Indeed, some competitors as well as school districts that handle their own fleets have already inquired about licensing or white labeling the service.

Management is targeting 100,000 parent subscribers, as it moves from the soft-launch phase to a fully marketed roll-out.

In addition to substantial one-time fees, the app’s implementation has two different avenues for earning recurring revenue.

Payment for SafeStop is generally covered by both school districts and parents.

At the parent level, the full price is $5 per month for the nine months of the school year. Many school districts partially subsidize that fee as well.

At the school district level, the set-up fee appears to be around $20,000.

Then there are nearly $11,000 in recurring annual fees (above and beyond what the parents pay), including $4,000 annually for the system, $5,750 annually for software and hardware, and another $1,000 annually for an alert system. These fees are based on what one school district reported, so they may vary by the size of the district.

There are other apps that offer parents the ability to track the whereabouts of their children for a similar monthly fee, but that requires that their kids already have a cell phone.

And none of the competing apps have the level of detail that SafeStop offers, which utilizes onboard GPS to give arrival times down to the minute.

We remain cautious on Student Transportation’s prospects, but we’re certainly intrigued by its latest moves.