5 High Dividend Stocks To Bet Against A Rate Hike

Concerns over declining oil prices, slowdown in the Chinese economy and uncertainty over the Presidential Election have been dominating the stock markets recently. However, improved labor market conditions and an almost desirable inflation rate make it favorable for the Fed to raise interest rates.

Janet Yellen’s much anticipated speech at the recent Jackson Hole symposium signals a possible rate hike in “recent months.” But the fact that rates will not be increased until the Election makes December a strong contender for the month of the hike.

However, a near-term rate hike speculation strengthened the dollar. This, along with galloping crude production in the Middle East, sent oil prices spiraling down on Monday. The oil minister of Iraq remarked that the country would continue to ramp up its output, pushing Brent crude down by 1.32% to settle at $49.26 a barrel, offsetting reports of an inventory drawdown at Cushing, OK.

Moreover, while the domestic economy is showing signs of steady recovery, global growth concerns are yet to alleviate. Sluggish growth in the world’s second-largest economy – China – has become a major drag on global growth. This month, the top 500 Chinese companies reported a combined revenue decline over the past 15 years, with many of them operating in the industries like coal, steel, oil and chemicals, all of which have been reeling under the impact of overcapacity. Meanwhile, European banks are still struggling due to lingering bad loans and low overall profits. On the other hand, as the Brexit episode is slowly taking a toll on the U.S. economy, the Fed plans to cope with this crisis before making an aggressive move such as a rate hike.

Back home, second-quarter GDP data, touted as the biggest economic release of the month, lagged expectations. The "second" estimate by the Bureau of Economic Analysis indicated 1.1% growth in GDP in the second quarter, down a tenth of a percent from the initial projection. Although growth in GDP remains sluggish, it is expected to pick up pace in the second half of the year. For now, investors anxiously await the release of unemployment data this week, as it is a major determinant of the rate hike.

The continuation of a low rate environment will make stable dividend payers more alluring, as investors will turn away from parking their money in safe haven assets such as bonds on account of low interest rates.

REITs offer stable dividends with a good inflation upside protection. REITs’ performance history makes them worthy options for investors looking for stable dividend yields. The FTSE NAREIT All REITs Index averaged a dividend yield of 3.73% in May 2016, compared to S&P 500’s 2.13%. Over longer periods too, the FTSE NAREIT All REITs Index has beaten the S&P 500 in terms of dividend yield over the 2010–2015 period by 1.5–2.2%.

Stocks of utility companies, on the other hand, enjoy a reputation for safety given the regulated nature of their business, which give their revenues a high level of certainty. They also benefit from the domestic orientation of their business, which shields them from foreign currency translation issues that have been a headwind for many other industries lately. These capital-intensive utilities routinely take recourse to the capital markets to arrange for funds needed to upgrade and expand their infrastructure. The prevalent low interest rate scenario helps them to get the much needed funds on favorable conditions. The Dow Jones Utility Average Index had a dividend yield of 3.2% in Jul 2016 as against the S&P 500’s 2.04%.

Here we have selected five such dividend-paying stocks that have a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a dividend yield of over 4%.

5 Stocks to Buy Now

Just Energy Group Inc. (TO:JE) is engaged in the sale of natural gas and/or electricity to residential and commercial customers under long-term fixed-price and price-protected contracts. This Zacks Rank #2 stock has a dividend yield of 6.8%.

Spark Energy, Inc. (NASDAQ:SPKE) is an independent retail energy services company. The company is involved in the retail distribution of natural gas and electricity. Spark Energy carries a dividend yield of 5% and a Zacks Rank #1.

Arbor Realty Trust Inc. (NYSE: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. It has a dividend yield of 8.3% and a Zacks Rank #2.

Senior Housing Properties Trust (NASDAQ:SNH) is a Maryland real estate investment trust that invests in senior housing income producing real estate, including senior apartments and assisted living, congregate care and nursing home properties. This Zacks Rank #2 stock carries a dividend yield of 7.1%.

Gramercy Property Trust Inc. (NYSE:GPT) is a real estate investment trust. It acquires, owns and operates commercial real estate such as warehouse, logistics properties and office buildings. Gramercy has a dividend yield of 4.6% and it carries a Zacks Rank #2.

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