Yahoo Finance 5 Dividend Stocks to Buy as Fed Suggests Further Rate Hikes
On Mar 7, U.S. stock markets fell sharply lower following Fed Chairman Jerome Powell’s statement before the Senate Banking, Housing and Urban Affairs Committee that rate hikes may continue for a longer period. On Mar 8, Powell will address the House Financial Services Committee.
Following Powell’s statement, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — fell 1.7%, 1.5% and 1.3%, respectively. The Dow has turned negative year to date. At this stage, high dividend-paying stocks should be in demand as investors will try to safeguard their portfolios.
We have selected five high dividend-paying stocks with a favorable Zacks Rank. These are — TriplePoint Venture Growth BDC Corp. TPVG, Vector Group Ltd. VGR, FLEX LNG Ltd. FLNG, Saratoga Investment Corp. SAR and Main Street Capital Corp. MAIN.
Powell Indicates Rate Hikes for a Longer Time
On Mar 7, Powell warned that interest rates are likely to head higher than what central bank policymakers had anticipated. Per Powell “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
In the December FOMC meeting, Fed officials estimated the terminal interest rate to be at 5.1% for this rate hike cycle. Accordingly, in the February FOMC, the central bank lowered the magnitude of the rate hike to 25 basis points.
However, after yesterday’s developments the situation has worsened. The CME Fedwatch is showing that market participants are now expecting the terminal interest rate to reach within the range of 5.5% to 5.75%.
After Powell’s comments, the CME FedWatch is showing a 73.5% probability that the Fed will hike the benchmark interest rate by 50 basis points in the March FOMC meeting while the probability of a 25 basis point hike is just 26.5%. These situations were almost reversed just before the release of Powell’s testimony.
Immediate Effect of Powell’s Statement
Wall Street retreated immediately after Powell’s testimony. All three major stock indexes along with the small-cap benchmark plunged. The ICE Dollar Index that measures the value of U.S. dollar against a basket of six major currencies surged to 105.43, marking its highest level since Jan 6.
The yield on the short-term 2-Year U.S. Treasury Note jumped above 5% for the first time since 2007. This yield is most susceptible to changes in expectations of interest rate movements. The spread between these two yields widened more than 100 basis points for the first time since Sep 22, 1981.
The yield on the benchmark 10-Year U.S. Treasury Note hit the 4% threshold briefly. Yields of the 2-Year and 10-Year Notes have inverted since the beginning of this year.
The yield curve (which measures interest at any given point of time for bonds of the same quality but with different maturity dates) of government bonds are generally upward sloping, implying that a higher rate of interest is needed for individuals to hold longer maturity bonds. In fact, several economists consider inversion between the 2-year and 10-year bond yields as an indication of possible recession.
Our Top Picks
We have narrowed our search to five high-dividend paying stocks that will act as a regular income stream in a volatile market. These stocks have strong earnings growth potential for 2023 and have seen positive earnings estimate revisions in the last 30 days.
Moreover, year to date, these stocks have provided higher returns than the market’s benchmark the S&P 500 Index. Each of our picks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
TriplePoint Venture is an externally managed, closed-end, non-diversified management investment company. TPVG’s investment objective is to maximize its total return to stockholders primarily in the form of current income and, to a lesser extent, capital appreciation by primarily lending with warrants to venture growth stage companies focused in technology, life sciences and other high-growth industries backed by a select group of leading venture capital investors.
TriplePoint Venture has an expected revenue and earnings growth rate of 21.6% and 3.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11% over the last seven days. TPVG has a current dividend yield of 11.64%. The stock price of TPVG has jumped 20.6% year to date.
Vector Group manufactures and sells cigarettes in the United States. It operates in two segments, Tobacco and Real Estate. VGR produces cigarettes under the EAGLE 20's, Pyramid, Montego, Grand Prix, Liggett Select, Eve, and USA brand names, and various partner and private label brands.
Vector Group markets and sells its cigarettes to wholesalers and distributors of tobacco and convenience products, as well as grocery, drug, and convenience store chains. VGR also engages in the real estate investment business, operates apartment buildings, hotels, and commercial real estate ventures.
Vector Group has an expected revenue and earnings growth rate of 7.6% and 18.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.5% over the last 30 days. VGR has a current dividend yield of 6.07%. The stock price of VGR has surged 8.3% year to date.
FLEX LNG is engaged in the seaborne transportation of liquefied natural gas worldwide. FLNG also provides chartering and management services. FLNG’s fleet consists of M-type electronically controlled gas injection LNG carriers and vessels with generation X dual fuel propulsion systems.
FLEX LNG has an expected revenue and earnings growth rate of 6.4% and 7.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 20.8% over the last 30 days. FLNG has a current dividend yield of 8.57%. The stock price of FLNG has advanced 6% year to date.
Saratoga Investment is a business development company specializing in leveraged and management buyouts, acquisition financings, growth financings, recapitalization, debt refinancing, and transitional financing transactions at the lower end of middle market companies.
SAR structures its investments as debt and equity by investing through first and second-lien loans, mezzanine debt, co-investments, select high-yield bonds, senior secured bonds, unsecured bonds, and preferred and common equity.
Saratoga Investment has an expected revenue and earnings growth rate of 16.3% and 17.3%, respectively, for the current year (ending February 2024). The Zacks Consensus Estimate for current-year earnings has improved 16.5% over the last 60 days. SAR has a current dividend yield of 9.82%. The stock price of SAR has appreciated 8.1% year to date.
Main Street Capital is a specialty investment company providing customized financing solutions to lower middle market companies which operate in diverse industry sectors. MAIN seeks to partner with entrepreneurs, business owners and management teams and generally provides one-stop financing alternatives to its portfolio companies.
Main Street Capital has an expected revenue and earnings growth rate of 26% and 18.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.9% over the last seven days. MAIN has a current dividend yield of 6.36%. The stock price of MAIN has climbed 12.5% year to date.
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Main Street Capital Corporation (MAIN) : Free Stock Analysis Report
Vector Group Ltd. (VGR) : Free Stock Analysis Report
Saratoga Investment Corp (SAR) : Free Stock Analysis Report
TriplePoint Venture Growth BDC Corp. (TPVG) : Free Stock Analysis Report
Flex LNG Ltd. (FLNG) : Free Stock Analysis Report
