The Federal Reserve is expected to cut short-term interest rates on Wednesday, which should be a boon for dividend stocks.
Chris Senyek, strategist at Wolfe Research, said: "Dividend-paying stocks in the financial sector" will benefit, especially "banks."
Lower short-term interest rates can also help banks earn more profits and reduce their funding costs.
That's a good starting point, with the 10 banks in the Russell 1000 that analysts like the most being East West Banking, Alliance Western Bancorp (WAL.N), Cinda Financial Holdings (WTFC.O), Insurance Group of America (RGA.N), Webster Financial (WBS.N), F.N.B. Corp (FNB.N), Banco Popular (BPOP.O), Prosperity Bancshares (PB.N), JPMorgan Chase (JPM.N) and First Citizens Bancorp (FCNCA.O).
The 10 banks have an average dividend yield of 2.3%, and they have paid out about 25% of their net income as dividends over the past 12 months, maintaining a relatively safe payout ratio. Their average buy rating ratio - the number of buy ratings divided by the total number of ratings - is about 81%. By comparison, the average buy rating ratio for stocks in the S&P 500 is about 55%.
Analyst ratings are just one way to identify stocks. As always, stock screening is just a start to uncover potential investment opportunities. After screening, each company has its own unique management team, strategy, and history that investors can delve deeper into.
Falling interest rates also tend to help lower-yielding stocks a bit more, which may not feel intuitive, but it's the result of certain investing calculations.
Barron’s screened the Russell 1000 for other dividend-paying stocks that are benefiting from rate cuts, based on Senyek’s tip. In his regular income investing update, Senyek notes that the highest-yielding stocks often have higher yields for some reason and face a higher risk of dividend cuts. And the second-highest-yielding quintile of stocks tend to outperform the highest-yielding stocks.
Based on this logic, the second-lowest-yielding stock may receive a larger boost than the lowest-yielding stock because investors may not hold the lowest-yielding stock for its yield, but rather in anticipation of its earnings growth.
The 10 non-financial stocks that Wall Street likes with reasonable yields include Delta Air Lines (DAL.N), UnitedHealth Group (UNH.N), motion control company ITT Inc (ITT.N), Walmart (WMT.N), liquefied natural gas terminal operator Cheniere Energy (LNG.N), oilfield services provider Weatherford International (WFRD.O), chipmaker Broadcom (AVGO.O), power generation company Vistra Energy (VST.N), Dell (DELL.N) and T-Mobile US (TMUS.O).
These 10 stocks have an average dividend yield of 1.2%, and they paid out about 48% of their net income as dividends over the past 12 months. Their average Buy rating is about 90%.
These 20 stocks all have the potential to benefit from lower interest rates, and investors now need to keep a close eye on what the Federal Reserve is doing.
Article forwarded from: Jinshi Data
