These 2 stocks deliver income as yields fall.
As rates fall, investors are searching high and low for yield.
A good place to start is stocks that offer stable and high dividends, though investors need to be careful when looking through such companies.
In an economic downturn or volatile market, it can be difficult for companies to sustain a high dividend with unstable cash flows and high credit risk.
Currently, the dividend yield for the S&P 500 is 1.85%, far below the historical average of 4.41% and nearing the all-time low of 1.11% reached in August 2000. But there are more than 20 companies with a dividend yield above 2%, with 10% or greater annual dividend growth over the past 5 years and with a credit rating of “A” or higher.
Simon Property Group (NYSE: SPG)—the largest shopping mall operator in the U.S.—has the highest dividend yield of the bunch at 5.6%, and boasts an “A” credit rating.
Investors have been piling into real estate REITs like SPG recently due to their higher dividends and steady cash flow, and the S&P 500 Real Estate sector is the best performing sector this year, returning nearly 30% year-to-date.
Simon Property Group in particular is generating record levels of earnings—revenue is up 2.5% year-over-year in the first half of 2019—and cashflow, and it would be doing even better if retailers weren’t hurting as much as they have been.
Even amid the retail carnage of bankruptcies and store closings, SPG is performing well due to the type of properties it operates: higher-end malls and retail outlet centers, two categories that have experienced much better foot traffic trends than lower-tier and full-price shopping centers.
Another notable name in the group is Home Depot (NYSE: HD). Home Depot offers a dividend of 2.43%, also has an “A” credit rating, and has seen 23.2% dividend growth over the last five years.
Just as real estate stocks perform well in low rate environments, so do home improvement stocks. As yields fall, mortgage rates fall right along with them, encouraging home owners to refinance. And when they do, they often use their extra monthly savings from mortgage payments to work on home impairment projects, boosting foot traffic and purchases at stores like Home Depot.
Home Depot has gotten a boost over the last month after it beat analyst estimates in its Q2 earnings report. While revenue fell short of expectations at $30.8 billion, earnings per share came in above expectations at $3.17 per share.
“We are encouraged by the momentum we are seeing from our strategic investments and believe that the current health of the U.S. consumer and a stable housing environment continue to support our business,” said Home Depot CEO Craig Menear in a statement.
Other names that meet the criteria include Prudential Financial (NYSE: PRU), 3M Company (NYSE: MMM), Cisco Systems (NASDAQ: CSCO), Texas Instruments (NASDAQ: TXN), and Medtronic (NYSE: MDT).
It’s unlikely interest rates will stop falling any time soon. The market is expecting at least a quarter-point cut at this month’s Federal Reserve meeting, and traders have priced in roughly 58 more rate cuts globally over the next twelve months, assuming central banks maintain their current easing trajectories.
Former Fed Chairman Alan Greenspan said this week that the U.S. is bound to follow the rest of the world to 0% and negative rates.
“You’re seeing it pretty much throughout the world,” Greenspan told CNBC. “It’s only a matter of time before it’s more in the United States.”
With possible negative rates on the horizon, investors will need to find income from somewhere, and these dividend stocks are a good place to start.