On Sept. 18, the Federal Reserve announced a 50-basis-point cut to its benchmark interest rate. This was its first interest rate cut in more than four years. The cut was at the high end of expectations, as many economists had been anticipating a 25-basis-point reduction. In addition, in a press conference following the rate cut announcement, Fed Chair Jerome Powell indicated that the central bank is open to several more cuts in coming months to help bolster the employment market.
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This has huge ramifications for investors. The interest rates on fixed-income instruments such as certificates of deposit and U.S. Treasury bonds should drop sharply as the rate cuts take hold. To keep earning higher rates of income, investors can rotate some of their holdings out of fixed income and into high-quality dividend stocks. These 15 offer particularly compelling prospects for the rest of 2024 and beyond:
— Toyota Motor Corp. (ticker: TM)
— Ford Motor Corp. (F)
— JD.com Inc. (JD)
— Estee Lauder Cos. Inc. (EL)
— United Micro Electronics (UMC)
— United Parcel Service Inc. (UPS)
— Cullen/Frost Bankers Inc. (CFR)
— Washington Trust Bancorp Inc. (WASH)
— BP PLC (BP)
— Canadian Natural Resources Ltd. (CNQ)
— Hormel Foods Corp. (HRL)
— Diageo PLC (DEO)
— Kimberly-Clark Corp. (KMB)
— OneMain Holdings Inc. (OMF)
— H.F. Sinclair Corp. (DINO)
Toyota Motor Corp. (TM)
Toyota Motor is one of the world’s dominant automakers
. It enjoys more than 50% market share in Japan and approximately 15% share in the United States. In total, Toyota sold more than 11 million vehicles in its 2024 fiscal year. There had been concerns that Toyota might get left behind as electric vehicle manufacturers such as Tesla Inc. (TSLA) took off. However, the EV market has lost steam over the past year. A reduction in government subsidies for EVs, along with consumer pushback, has caused analysts to reevaluate the sector. Toyota, with its conservative approach and strong balance sheet, is in a strong position in both conventional and hybrid vehicles. The valuation is also compelling, with TM stock trading at less than eight times forward earnings.
Ford Motor Corp. (F)
Toyota isn’t the only bargain automaker today. Ford also screens well for prospective income investors. Ford had a series of strategic missteps in prior years, and investors are understandably disappointed with the company’s past performance. That said, the company’s renewed focus on its light truck business is likely to be a winning move, especially as gas prices have dipped in recent months. Ford faces challenges with its loss-making electric vehicle division, but the company’s large size and operating scale give it more flexibility to adapt to changes in the market. Morningstar’s David Whiston believes Ford shares are dramatically mispriced; he assigns a fair value of $19 per share, implying steep upside from its $10.98 closing price on Sept. 18.
JD.com Inc. (JD)
The Chinese stock market has struggled to recover from pandemic-era disruptions. This has had a miserable effect on Chinese equities. And it’s not only the major tech stocks that are slumping. For example, Hong Kong’s Hang Seng Index is down 33% over the past five years, and it recently retested prior lows set back in 2009.
China’s economic outlook remains uncertain, and there are heightened concerns around U.S.-Chinese relations ahead of the upcoming presidential election. But that’s all baked into JD’s stock price and then some. Shares of the e-commerce giant are now selling for less than seven times forward earnings. The company also pays a healthy dividend and announced a hefty new $5 billion share repurchase program in August.
Estee Lauder Cos. Inc. (EL)
Estee Lauder offers income investors another way to profit from the current despair in China-related equities. While the cosmetics giant is based out of New York City, in recent years, it has invested heavily in emerging markets such as China and Latin America. That had paid off well amid the rise of the global middle class, creating a whole host of potential new consumers for beauty and cosmetics products.
However, the ongoing sales slump in markets such as China and South Korea has hit Estee Lauder’s profit margins badly and led shares to drop as much as 80% from their prior all-time highs. This is a gross overreaction; Estee Lauder remains profitable and its operating results are already starting to recover from the recent trough. Estee Lauder has historically been a higher-growth business with a low dividend yield, but the stock’s recent stumbles have pushed the starting yield up to 3%.
United Micro Electronics (UMC)
United Micro Electronics is a Taiwan-based semiconductor foundry. While rival Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) has grabbed most of the attention in the chip foundry space, the market is large enough to support multiple successful businesses. United Micro Electronics generates more than $7 billion annually in revenues, and is strongly profitable.
Its sales should grow over time as the overall semiconductor market continues to grow, particularly thanks to fields such as connected cars and Internet of Things applications, which require a great deal of computing power. Due to a cyclical decline in chip demand in the industrial and consumer electronics industries, UMC stock remains on sale today and pays out a large chunk of its profits in dividends.
United Parcel Service Inc. (UPS)
United Parcel Service is a gigantic freight and logistics company. With more than 500 planes and 100,000 vehicles, UPS is an integral part of the world’s supply chain and is a key player in the e-commerce fulfillment arena. At one point, there were serious concerns that Amazon.com Inc. (AMZN) would eat into UPS’ market share. However, these concerns have receded as Amazon has pulled back on logistics spending over the past year. More recently, investors have fretted about higher costs related to labor and other expenses at UPS. These are valid concerns. However, the slowing labor market should help ease pressure on this front.
UPS could face challenges if the economy goes into a prolonged slump. That said, investors seem overly negative about the transportation sector, and UPS stock is currently offering a rewarding 5% dividend yield.
Cullen/Frost Bankers Inc. (CFR)
Founded in 1868, this San Antonio-based regional bank is one of the largest players in the Texas market. The bank enjoyed rapid growth over the past decade, with total assets topping the $50 billion mark in 2021. The Texas market has served Cullen/Frost well, as dynamic economic growth in cities like Austin and Houston has created a great deal of banking opportunities for the firm.
In addition, Cullen/Frost has a bit of a contrarian style in managing its capital. It operates with a very low loan-to-deposit ratio, compared to peer banks, which made it unusually safe and well-protected from the recent deposit flight which hit the industry. Recently, the bank’s net interest margin has increased, and the bank’s return on equity (ROE) rose to 17.4% in 2023 — its highest ROE reading since 2005. CFR stock has underperformed in recent years, but shares could be primed for a sizable rally as Fed interest rate cuts lead to more activity in the regional banking sector and improving interest rate spreads on lending activities.
Washington Trust Bancorp Inc. (WASH)
Founded in 1800, Washington Trust Bancorp is one of the nation’s oldest operating regional banks. Originally established to provide credit to the farming and milling operations springing up along the Pawcatuck River, today Washington Trust is the largest regional bank headquartered in Rhode Island. The bank has paid dividends for more than a century, and it remained profitable even during the 2008 financial crisis, which demonstrated its conservative and proven business model. WASH stock has underperformed in recent years as the inverted yield curve limited the bank’s profitability. But the firm’s profitability should rebound as the Fed cuts rates. In the meantime, income investors can cash in on this rock-solid 6.8% dividend yield.
BP PLC (BP)
Britain’s BP is one of the world’s largest energy companies
, with revenues of around $200 billion annually. Long a pioneer in oil and gas development in previously untapped regions of the world, BP has now become a leader in the renewable energy revolution. That led to some issues, as BP invested heavily in green energy while paring back activity in its more profitable core oil and gas business. However, management saw the light and adjusted its approach toward a more balanced mix of legacy energy production and next-generation technologies. The market is still not giving BP much respect, even as it has charted a more investor-friendly capital allocation approach. As a result, shares are going for just seven times forward earnings while paying out a generous 5.9% dividend yield.
Canadian Natural Resources Ltd. (CNQ)
Canadian Natural Resources is one of Canada’s largest energy companies. The firm has built its business on its expertise in the oil sands. This oil resource, found primarily in the province of Alberta, is a dense, viscous form of petroleum. Producing it is more akin to hard-rock mining than drilling oil wells. This means that Canadian Natural Resources’ oil sands reserves have a massive operational lifespan and do not see production declines year over year in the same way that traditional oil wells or fracking would.
Long story short, in a world where environmentalists and regulators have made it increasingly difficult to exploit new oilfields, the company’s existing oil sands take on far more importance, with huge reserves and steady production. CNQ stock has dipped recently amid the broader crude oil sell-off. That is fine for the company’s shareholders, as the company’s large buyback program gobbles up shares at a more attractive valuation.
Hormel Foods Corp. (HRL)
Minnesota’s Hormel Foods was founded back in 1891. The company came to prominence during World War II when its canned pork product, SPAM, became invaluable in feeding troops who were serving overseas. Some investors may still associate Hormel with this older history and think the company is past its prime.
However, the company has quietly reinvented itself. Legacy products such as SPAM and Hormel Chili now constitute a modest portion of overall sales, meanwhile the company has pivoted to healthy protein-centric food options that appeal to millennials and Gen Z consumers. Hormel’s nut butters, guacamole, organic and naturally raised meats, and so on are right on target with current nutritional trends. Hormel is also a Dividend King, with a stunning 57-year track record of increasing its dividend annually. Hormel stock now offers a dividend yield of 3.5%, a figure which is far above its historical average.
Diageo PLC (DEO)
Diageo is another undervalued consumer staples company. This British company is known around the globe for brands such as Smirnoff, Baileys, Captain Morgan, Johnnie Walker, Ciroc and Guinness beer. The alcoholic spirits industry saw its fortunes slump over the past two years as the pandemic disrupted bar and restaurant operations and led to excess inventories in certain sales channels. In addition, certain Asian markets continue to show profound weakness as consumers have pulled back on spending, particularly around higher-priced spirits which are often purchased as gifts. However, the spirits industry has a long, proven track record of performing well through various economic conditions. In addition, Diageo shares should benefit as interest rates decline, lowering its interest expenses while making the firm’s dividend more tempting to investors.
Kimberly-Clark Corp. (KMB)
Kimberly-Clark has a leading position in personal care products, with an emphasis on paper products such as toilet paper, diapers and products for managing incontinence. The company’s share price has been effectively flat over the past five years as investors have gravitated toward more interesting stock market sectors. However, in a potential economic downturn, Kimberly-Clark’s recession-proof product lineup should ensure consistent revenues and profitability. Shares are going for less than 19 times forward earnings and offer a reliable 3.5% dividend yield. Plus, profits may trend higher as inflationary pressures on costs such as wood pulp, electricity and chemicals ease.
OneMain Holdings Inc. (OMF)
OneMain is a specialty consumer finance company which makes personal loans to consumers. These are either unsecured or backed by collateral such as automobiles. While people may label companies like OneMain as subprime lenders, the company’s actual risk pool is on average situated among the middle tier of borrower quality.
OneMain has an extensive operating history; it was a longtime piece of Citigroup Inc. (C) before becoming a publicly traded company in 2013. OneMain operated successfully through prior downturns such as the 2008 financial crisis and obtained invaluable experience for dealing with future economic downturns. OneMain shares pulled back recently as recession fears have picked up steam. But the company’s strong business model and robust risk management track record make it a worthy name to own within the credit space. Shares trade at a single-digit P/E ratio and yield 8.6%.
H.F. Sinclair Corp. (DINO)
H.F. Sinclair is an oil refining company. It produces gasoline, diesel, jet fuel, lubricants and other refined outputs primarily for sale in the Great Plains and Rocky Mountain states. In addition to refining, it provides fuel to about 1,500 independent Sinclair fueling stations.
Refining used to be a structurally challenged industry plagued by high volatility and low profit margins. However, refining’s fortunes have improved in recent years. The sharp increase in North American oil production has provided cheaper feedstocks to refineries and allowed them to earn enhanced profit margins. While the long-term trajectory is bright, many refining stocks, including H.F. Sinclair, have slipped to near 52-week lows recently on broader selling across the energy sector. Income investors can snap up DINO stock for its steady 4.3% dividend yield today.
[SEE: 9 Highest Dividend-Paying Stocks in the S&P 500]
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15 Best Dividend Stocks to Buy Now originally appeared on usnews.com
Update 09/19/24: This story was previously published at an earlier date and has been updated with new information.
