High-Dividend Stocks Expected to Rise as Rates Drop
- BMO predicts that high-dividend stocks will see an increase following a reduction in Federal Reserve interest rates.
- The movement in dividend stocks is linked to potential shifts in investor sentiment towards safer investments.
- Investors may want to keep an eye on these stocks as they could yield higher returns in a declining interest rate environment.
As the Federal Reserve prepares to cut interest rates, analysts predict a decline in stock yields, particularly in sectors that have been misunderstood in their relationship with interest rates. According to Belski, a recent note highlighted that the significant underperformance of certain stocks was likely an overreaction by investors. Notably, Pfizer, with a yield of 5.73%, has seen a modest 2% increase in its stock price year-to-date, bolstered by a successful cost-cutting program and strong sales of its Covid antiviral pill, prompting the company to raise its full-year outlook. AbbVie, another key player, boasts a 3.34% dividend yield and has experienced a nearly 20% rise in its stock this year. The company recently completed an $8.7 billion acquisition of Cerevel Therapeutics, which is developing treatments for neurological and psychiatric conditions, further enhancing its growth prospects. In the utility sector, American Electric Power and Southern Company are also performing well, with yields of 3.58% and 3.33%, respectively. American Electric Power's shares have surged 21% this year, while Southern Company has seen a 23% increase, reflecting strong investor confidence in these utilities. Conversely, the real estate sector has struggled, with a mere 4% gain year-to-date compared to the S&P 500's approximate 16% increase. Digital Realty Trust, yielding 3.28%, has gained about 10% this year, driven by rising demand for data centers amid the AI boom, while Host Hotels & Resorts continues to face challenges in the current market landscape.