5 Top Dividend Stocks to Buy as Rate Cut Odds Rise

At the end of its widely watched two-day policy meeting, the Federal Reserve left interest rates unchanged. Further, there was no formal word on whether rates would come down later this year. But during the press conference which followed the meeting, Fed Chair Jerome Powell stated that several policymakers believe that the time for a rate cut is fast approaching.

These are words which will surely please market participants. Apart from the rate-sensitive stocks, which will gain from softer rates, dividend-yielding stocks will also benefit. Not only will conservative investors seek them out, growth-oriented investors will also seek to gain from the price surge in high-yield stocks.

Fed Holds Rates Steady, Drops “Patient” Approach

The Federal Reserve has kept its benchmark lending rate unchanged within a targeted band of 2.25-2.5%. Rates have remained flat ever since the central bank controversially voted to raise rates in December. Policymakers voted 9-1 to keep rates flat with only Louis Fed President James Bullard asking for a rate cut.

However, the Fed did indicate that it was concerned about slower growth, dropping the word “patient” which it has used to characterize its approach till now. The central bank also admitted that inflation was “running below” its targeted level of 2%. In fact, Fed cut its inflation estimate from 1.8% to 1.5%.

Coming to expectations about the key rate, eight members think at least one rate cut should take place this year. A similar number desires that the current level be maintained and only one member wants a rate hike.  For 2020, the consensus is largely dovish, with nine members opining that rates should come down to 2.1%.

Some Officials Think Rates Should be Cut, Says Powell

Speaking to the press after the meeting, Powell revealed that some officials think that the federal funds target rate should be reduced going forward. They believe that recent economic developments have strengthened the case for an easier approach to monetary policy.

Such concerns include a slowdown in global growth, sluggish inflation and the fallout of the United States’ conflict with key trading partners, such as China. Revealing more about policymakers’ expectations of rates, Powell said that even members calling for flat rates “agree the conditions for accommodation have strengthened since our May meeting.”

Economists now believe that a rate cut later this year is now a certainty. This should greatly reduce friction between Powell and President Trump, who has been consistently critical of the Fed Chair. The question is now one of timing. A reduction in rates would only be an attempt to arrest a slowdown, instead of triggering a fresh rate cutting cycle.

Our Choices

Though the Fed has refrained from raising rates, this time around a rate cut in the near future now looks inevitable. Several policymakers are veering around to the view that worrying economic conditions are strengthening the case for at least one rate cut later this year.

Investing in dividend stocks, which have registered strong price gains this year, looks prudent. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

The GEO Group, Inc. GEO is a real estate investment trust (REIT). It specializes in the design, development, financing and operation of correctional, detention and community reentry facilities.      

The GEO Group has a VGM Score of A. The stock has a dividend yield of 8.1%. It has gained 21% year to date.

Arbor Realty Trust, Inc. ABR is a specialized real estate finance company investing in real estate-related bridge and mezzanine loans, preferred equity, mortgage-related securities and other real estate-related assets.

Arbor Realty Trust has a VGM Score of B. The stock has a dividend yield of 9.1%. It has gained 23.2% year to date.

Artisan Partners Asset Management Inc. APAM is an independent investment management firm that provides a broad range of U.S., non-U.S. and global equity investment strategies.

Artisan Partners has a VGM Score of B. The stock has a dividend yield of 8.1%. It has gained 21.1% year to date.

Legg Mason Inc. LM is a global asset management firm focused on the growth and preservation of its clients' capital through its proprietary mutual funds and separately managed accounts (SMAs).

Legg Mason has a VGM Score of B. The stock has a dividend yield of 3.8%. It has gained 42.8% year to date.

H&E Equipment Services, Inc. HEES is one of the largest-integrated equipment services companies in the United States with full-service facilities throughout the Intermountain, Southwest, Gulf Coast & Southeast regions of the United States.

H&E Equipment Services has a VGM Score of B. The stock has a dividend yield of 3.9%. It has gained 37.1% year to date.

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Legg Mason, Inc. (LM): Free Stock Analysis Report

Artisan Partners Asset Management Inc. (APAM): Free Stock Analysis Report

H&E Equipment Services, Inc. (HEES): Free Stock Analysis Report

Arbor Realty Trust (ABR): Free Stock Analysis Report

Geo Group Inc (The) (GEO): 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.

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