Source: Jin10 Data
Author: Cai Zijun
With the Fed cutting interest rates, not only banks and other financial companies will benefit, but non-financial giants like delta air lines and unitedhealth may also benefit from it.
The Fed is expected to cut short-term interest rates on Wednesday, which should be bullish for dividend-paying stocks.
However, which stocks will benefit? Wolfe Research's strategist Chris Senyek said, "Dividend-paying stocks in the financial sector" will benefit, especially the "banks".
The cut in short-term interest rates can also help banks earn more profits and lower their financing costs.
This is a good starting point, the 10 banks in the Russell 1000 index that analysts are most bullish on are $East West Bancorp (EWBC.US)$N/A.$Western Alliance Bancorp (WAL.US)$,$Wintrust Financial (WTFC.US)$,$Reinsurance Group of America (RGA.US)$,$Webster Financial (WBS.US)$,$F.N.B. Corp (FNB.US)$and$Popular (BPOP.US)$N/A.$Prosperity Bancshares (PB.US)$and$JPMorgan (JPM.US)$And.$First Citizens BancShares (FCNCA.US)$.
The average dividend yield of these 10 banks is 2.3%. In the past 12 months, they have paid out about 25% of their net income as dividends, maintaining a relatively safe payout ratio. Their average buy rating ratio - the number of buy ratings divided by the total number of ratings - is about 81%. In comparison, $S&P 500 Index (.SPX.US)$'s average buy rating ratio is about 55%.
Analyst ratings are just one way to identify stocks. As always, stock screening is just a start to help uncover potential investment opportunities. Following the screening, each company has its unique management team, strategy, and history, which investors can further research.
Interest rate declines also tend to be more helpful for low-yield stocks, which may feel counterintuitive, but this is the result of certain investment calculations.
According to Senyek's suggestion, Barron's selected some dividend-paying stocks in the Russell 1000 Index that are expected to benefit from interest rate cuts. Senyek pointed out in his regular income investment update that stocks with the highest yields usually have higher earnings for some reason, but also face higher dividend reduction risks. The top 20% of stocks with the second highest yield often outperform the stocks with the highest yield.
Based on this logic, stocks with the second lowest yield may experience greater improvement compared to stocks with the lowest yield, because investors may not hold the lowest yielding stocks for their yield, but rather expect their earnings to grow.
The 10 non-financial stocks that Wall Street is optimistic about and have reasonable returns include $Delta Air Lines (DAL.US)$and$UnitedHealth (UNH.US)$ , motion control company$ITT Inc (ITT.US)$,$Walmart (WMT.US)$, liquefied natural gas terminal operator$Cheniere Energy (LNG.US)$, oilfield service provider$Weatherford International (WFRD.US)$, chip manufacturer$Broadcom (AVGO.US)$Power generation companies$Vistra Energy (VST.US)$and$Dell Technologies (DELL.US)$ and$T-Mobile US (TMUS.US)$.
The average dividend yield of these 10 stocks is 1.2%, and they have paid approximately 48% of their net income as dividends in the past 12 months. The average buy rating ratio for them is about 90%.
These 20 stocks have the potential to benefit from the interest rate cut, and investors now need to closely monitor the movements of the Federal Reserve.
Editor/Jeffy