5 Rock-Solid Dividend Stocks to Buy on New Fed Outlook

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"An ounce of prevention is worth a pound of cure" and the Federal Reserve chairwoman, Janet Yellen has been rightly following the saying, as she and her policy-making committee voted to keep the benchmark interest rate unchanged at least for another month. Market experts cited that the overseas turmoil, derailment of the Chinese economy and the descending prices of crude oil and commodities have rattled investors worldwide, and the decision not to go for a rate hike seems a wise one in the given scenario.

So, the federal funds rate is left untouched at 0.25% to 0.50% for now, providing the stock market with the much-needed impetus. The major indices ended trading in the green yesterday. The Dow Jones Industrial Average climbed 74.23 points, or 0.4% to 17,325.76, while Nasdaq Composite rose 35.30 points or 0.8% to 4,763.97. The S&P 500 advanced 11.29 points or 0.6% to 2,027.22.

However, the policy makers hinted that they have adopted a cautious stance given the current situation prevailing in the broader economy, but plans for a rate hike remain in the cards. Last December, the Fed had planned up to a four quarter-point rise in interest rate in 2016. However, the financial mayhem beyond the borders compelled it to retreat from its plan, and adopt a more steady and meticulous approach. Market pundits now expect two quarter-point rate hikes by the end of the year.

The Fed still remains cautiously optimistic about the U.S. economy and as the situation improves worldwide, the U.S. will be ready to lead the squad. The economy is not in bad shape as some of the risk-averse investors perceive. The employment picture is good enough to clear the way and inflation is crawling toward the desired level.

The Fed now anticipates the U.S. economy to expand at a pace of 2.2% this year, marginally lower than 2.4% projected earlier, thanks to the recent turbulence. On the other hand, inflation is likely to hover around 1.2% by the end of the year, falling shy of the Fed's target of 2%. The unemployment rate, which was 4.9% in February, is estimated to be 4.7% by the end of this year, 4.6% by 2017 and 4.5% by 2018.

While the global markets are still trying hard to make their way out of the woods, domestic investors welcomed the Fed's decision, which to an extent calms the jitters that rose yesterday, when discouraging retail sales data for February and a downward revision to January retail sales point to some degree surfaced. (Read: 5 Great Stocks to Buy Despite Weak Retail Sales ). Definitely, the eventful financial world might perplex you and your investment precision, so better to bet your bucks on safer counters.

Where Lies the Safe Haven?

Modest economic growth, impressive employment statistics, rebounding oil prices on renewed hope for an output freeze, and favorable manufacturing data are doing a commendable job in alleviating investors' concerns. Yet any unprecedented macroeconomic headwind can make them impatient. So be very careful when it comes to investments.

You should diligently choose your portfolio of stocks that may give the best returns. The year so far has not been much investor friendly and what the future has in store is hard to predict. However, it is still not impossible to locate greener pastures.

On that note, while building a portfolio, one should consider stocks with a high dividend yield. Investors prefer an income generating stock, and therefore a dividend paying stock is always a preferable option.

John Davison Rockefeller once said, "Do you know the only thing that gives me pleasure? It's to see my dividends coming in." People looking for regular income from stocks are most likely to be inclined toward those companies that have a track of consistent and incremental dividend payments. They are safer bets, particularly in a low-rate environment, as they provide a cushion during economic uncertainties.

5 Rock-Solid Stocks with Great Dividend Yields

We have picked five stocks that hold promise in a dwindling market. Not only do these stocks carry a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy), but these also have a dividend yield of 3% or greater.

We have also resorted to our Zacks Style Score , which helps in selecting stocks with strong upside potential. If you are familiar with the Zack Style Score system, then it will not be hard to get a grasp over the VGM score. Here, V stands for Value, G for Growth and M for Momentum. The VGM score is simply a weighted combination of these parameters and is a comprehensive tool that allows investors to filter through the standard scoring system and better choose winning stocks.

American Eagle Outfitters, Inc. AEO , a retailer of apparel and accessories in the U.S. and internationally, is a solid bet. The stock flaunts a Zacks Rank #1 and has a long-term earnings growth rate of 10%. Based in Pittsburgh, PA, the company has a dividend yield of 3.1% with a VGM score of "A."

Investors can also count on Ford Motor Co. F , which through its subsidiaries, designs, manufactures, markets, finances, and services automobiles. The stock holds a Zacks Rank #2 and a long-term earnings growth rate of 9.1%. This Dearborn, MI-based company has a dividend yield of 4.4% with a VGM score of "A."

We also suggest investing in Mattel, Inc. MAT , which carries a Zacks Rank #2 and has a long-term earnings growth rate of 12.4%. This El Segundo, CA-based designer, manufacturer, and marketer of a range of toy products globally has a dividend yield of 4.7% with a VGM score of "A."

Another stock that investors may look forward to is Capella Education Co. CPLA , holding a Zacks Rank #2, with a long-term earnings growth rate of 7.9%. This Minneapolis, MN-based online postsecondary education services company has a dividend yield of 3.1% with a VGM score of "B."

Last but not the least is Hersha Hospitality Trust HT , a real estate investment trust. The company carries a Zacks Rank #2 and has a long-term earnings growth rate of 9.7%. This Cumberland, PA-based company has a dividend yield of 5.2% with a VGM score of "B."

Final Verdict

A dividend is a distribution of part of the company's earnings, given to its stockholders either on a quarterly basis or semi-annually or annually. The willingness and ability on the part of the company to pay dividends regularly and increase the same from time to time sends a loud message about its soundness, prospects and performance as well as its underlying fundamentals. These together form the base of our investment strategy. Definitely, do not forget to use the Zacks Stock Screener to find other stocks with a winning combination.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.  Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

FORD MOTOR CO (F): Free Stock Analysis Report

AMER EAGLE OUTF (AEO): Free Stock Analysis Report

CAPELLA EDUCATN (CPLA): Free Stock Analysis Report

MATTEL INC (MAT): Free Stock Analysis Report

HERSHA HOSPTLY (HT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Business , Investing , Stocks
Referenced Symbols: F , AEO , MAT , HT

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