Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20
Gold Gann Angle Update - 10th Jan 20
Gold In Rally Mode Suggests Commitment of Traders (COT) Data - 10th Jan 20
Disney Could Mount Its Biggest Rally in 2020 - 10th Jan 20
How on Earth Can Gold Decline During the U.S. – Iran Crisis? - 10th Jan 20
Getting Your HR Budget in Line - 10th Jan 20
The Fed Protects Gamblers at the Expense of the Economy - 9th Jan 20
Last Chance to Get Microsoft Windows 10 for FREE! - 9th Jan 20
The Stock Market is the Opiate of the Masses - 9th Jan 20
Is The Energy Sector Setting Up Another Great Entry? - 9th Jan 20
The Fed Is Creating a Monster Bubble - 9th Jan 20
If History Repeats, Video Game Stocks Could Soar 600%+ - 9th Jan 20
What to Know Before Buying a Land Rover Discovery Sport in 2020 - 8th Jan 20
Stock Market Forecast 2020 Trend Analysis - 8th Jan 20
Gold Price at Resistance - 8th Jan 20
The Fed Has Quietly Started QE4 - 8th Jan 20
NASDAQ Set to Fall 1000pts Early 2020, and What it Means for Gold Price - 8th Jan 20
Gold 2020 - Financial Analysts and Major Financial Institutions Outlook - 8th Jan 20
Stock Market Trend Review - 8th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

These Three Stocks Love Low Interest Rates

Companies / Investing 2019 May 31, 2019 - 06:07 PM GMT

By: Robert_Ross

Companies

Looks like the Federal Reserve will cut interest rates soon.

Sure, the Fed announced it was leaving interest rates put last week. But I think the Fed will take this one step further and cut rates in the near future.

The Fed lowers interest rates when it thinks the economy is weak. This makes it cheaper for businesses to borrow money and employ more people.

And we’re already seeing signs of a slowing economy.

When the economy slips into a recession, which I expect to happen in the next year or so, the Federal Reserve will no doubt lower interest rates—just like it’s done after every recession since 1950.


I know this all sounds bleak.

But lower rates are actually great news for one type of stocks, which I’ll tell you about in a moment.

Low Interest Rates Are the New Normal

After years of near-zero interest rates, the Fed began raising rates in 2016. Then the stock market fell 20% at the end of 2018, and it abandoned this strategy.

It’s held rates steady ever since, as you can see in the next chart.



Right now, interest rates are less than half their long-term average of 5.2%.

John Williams, the former president of the Federal Reserve Bank of San Francisco, says this is the new normal. In recent interviews, he’s even advocated for keeping interest rates “lower for longer.”

If the economy continues to slow, as I expect it to, the logical next step is to cut interest rates. That makes now the perfect time to buy dividend-paying stocks.

Low Rates Make Dividend-Paying Stocks More Competitive

Income investors look to CDs, bonds, and dividend-paying stocks to generate income.

As a general rule, CDs and bonds are less risky than dividend-paying stocks. But there’s a tradeoff—their yields are closely linked to interest rates set by the Federal Reserve.

When interest rates are low, CD and bond yields are also low. And vice versa. When interest rates are high, CD and bond yields are high.

That’s not the case with dividend-paying stocks. This can make them more attractive than CDs or bonds in a low-interest-rate environment.

And, the lower rates dip, the more attractive they get.

Dividend-Paying Stocks Already Have an Edge

CDs currently yield around 2.5%. And the 10-year Treasury note yields 1.8%.

Now, compare that to the 3.0% yield on Vanguard High Dividend Yield Index (VHDYX), which is a good proxy for dividend-paying stocks.



But what happens if the Fed lowers interest rates, as I expect it to?

Say the yields on CDs and the 10-year Treasury note fall 1.8% and 0.9%, respectively. That would make dividend-paying stocks nearly twice as competitive.

Lower Rates Will Boost These Three Stocks Most

I’m always on the hunt for safe and stable dividend-paying stocks.

Right now, I’m focused on a handful of industries that do particularly well when interest rates are low. This includes industries that require a lot of capital and debt. Low rates make it cheaper to borrow, which helps businesses in these industries.

The best example of this is real estate investment trusts (REITs). REITs own different types of real estate—everything from commercial warehouses to apartment buildings.

With interest rates low and heading lower, I expect money to flow into REITs.

Right now, my favorite way to invest in REITs is the Vanguard Real Estate ETF (VNQ). It pays a safe and stable 4.0% dividend yield.

Like REITs, utilities also benefit from low interest rates.

See, utilities are as recession-proof as it gets. People and businesses pay their power bills no matter what’s happening in the economy or financial markets. So these businesses are very stable.

That’s why investors pour into them when interest rates are low, looking for a safe dividend yield.

My top utility pick right now is the Fidelity MSCI Utilities ETF (FUTY). FUTY pays a 2.9% dividend yield. That’s 50% higher than the yield on one-year Treasury bills.

Low interest rates also boost telecom companies, which build, own, and operate internet and other high-speed data infrastructure.

Today, most people depend on mobile and high-speed internet access. So, these industries are very safe.

Telecom stocks also pay high dividends. The iShares Global Communications Services ETF (IXP), for example, pays a solid 3.7% dividend yield.

When interest rates head lower, I expect investors to pile in here, too.

All told, now is a great time to buy dividend-paying stocks, especially in the three industries I just mentioned.

Once the Fed pushes interest rates even lower, investors will start pouring in. At that point, you will have missed your best chance to buy.

The Sin Stock Anomaly: Collect Big, Safe Profits with These 3 Hated Stocks

My brand-new special report tells you everything about profiting from “sin stocks” (gambling, tobacco, and alcohol). These stocks are much safer and do twice as well as other stocks simply because most investors try to avoid them. Claim your free copy.

By Robert Foss

© 2019 Copyright Robert Foss. - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules