The Fed paused the current interest rate hike cycle in its June FOMC meeting after 10 consecutive increases. However, Fed Chairman Jerome Powell warned that more rate hikes are expected this year. The “dot plot” of the June FOMC showed that the majority of Fed officials expected two more rate hike of 25 basis points each this year.
The inflation rate stayed elevated well above the central bank’s 2% target rate despite a stiff fall from its 40-year peak in June 2022. The major concern for the Fed is a resilient U.S. labor market. Although job additions in June were lower than expectations, it was in line with the historical average. Moreover, the wage rate remained sticky downward.
Market participants are expecting the Fed to hike the benchmark interest rate again in the July FOMC meeting. At present, the CME FedWatch indicates almost a 100% probability that the Fed will raise the benchmark lending rate by 25 basis points to a range of 5.25-5.5% in July. No rate cut is expected this year. The first cut in interest rate may be delayed till 2025.
The expectation for the terminal interest rate for the ongoing rate hike cycle is currently 5.6%, instead of the 5.125%, anticipated after the May FOMC meeting. Several economists and financial experts remained concerned that higher interest rate may lead to a near-term recession.
Stocks in Focus
At this stage, dividend-paying stocks should be in demand as investors try to safeguard their portfolios. We believe that one should consider stocks that have recently raised their dividend payments. Five such companies are – Unum Group UNM, NRG Energy Inc. NRG, The Bank of New York Mellon Corp. BK, Morgan Stanley MS and Activision Blizzard Inc. ATVI.
Unum Group’s conservative pricing and reservation practices have contributed to overall profitability. The sustained increase in premiums is being fueled by high persistency levels in core business and strong sales volume along with a solid benefits experience. The geographic expansion of UNM is paying off as acquired dental insurance businesses are growing in the United States and the U.K.
We believe that strong operating results have led to a solid level of statutory earnings and capital, boosting financial flexibility. Unum Group has continually enhanced shareholders’ value. For the long term, it estimates premium from core business to increase 3-5%. UNM estimates 45-55% growth in adjusted operating EPS by 2024. UNM currently carries a Zacks Rank #3 (Hold).
On Jul 14, 2023, Unum Group declared that its shareholders would receive a dividend of $0.365 per share on Aug 18, 2023. It has a dividend yield of 3.1%. Over the past five years, UNM has increased its dividend five times, and its payout ratio presently stays at 20% of earnings. Check UNM’s dividend history here.
NRG Energy’s operation continues to expand through organic and inorganic initiatives. NRG’s diverse customer base and long-term retention of customers increase the predictability of earnings. NRG aims to achieve net-zero emissions by 2050.
NRG Energy’s capital allocation plan will strengthen its balance sheet. Our model predicts NRG’s total operating costs to decline during 2023-2025. NRG currently carries a Zacks Rank #3.
On Jul 17, 2023, NRG Energy declared that its shareholders would receive a dividend of $0.3775 per share on Aug 15, 2023. It has a dividend yield of 4.2%. Over the past five years, NRG has increased its dividend four times, and its payout ratio presently stays at 48% of earnings. Check NRG’s dividend history here.
The Bank of New York Mellon provides a range of financial products and services in the United States and internationally. Global expansion plans, robust assets under management balance, business restructuring, a solid balance sheet position and digitizing operations will keep supporting the revenues of BK.
Our estimates for total revenues suggest a CAGR of 3.1% over the next three years. Higher interest rates will continue to support BK’s net interest revenues and margins. Our estimates for NIR indicates a jump of 20.6% for 2023. BK currently carries a Zacks Rank #3.
On Jul 18, 2023, The Bank of New York Mellon declared that its shareholders would receive a dividend of $0.42 per share on Aug 10, 2023. It has a dividend yield of 3.9%. Over the past five years, BK has increased its dividend five times, and its payout ratio presently stays at 31% of earnings. Check BK’s dividend history here.
Morgan Stanley’s restructuring initiatives to become less dependent on capital-markets-driven revenue sources, inorganic growth efforts, focus on corporate lending and higher interest rates, are expected to support the top line. Our estimates for total revenues indicate a CAGR of 3.2% by 2025. Supported by a solid capital position, MS’ capital deployment activities seem sustainable. MS currently carries a Zacks Rank #3.
On Jul 18, 2023, Morgan Stanley declared that its shareholders would receive a dividend of $0.85 per share on Aug 15, 2023. It has a dividend yield of 3.6%. Over the past five years, MS has increased its dividend five times, and its payout ratio presently stays at 52% of earnings. Check MS’ dividend history here.
Activision Blizzard’s top line is expected to benefit from an expanding user base of Call of Duty, Hearthstone, World of Warcraft, and Candy Crush franchises. This is expected to boost in-games spending, thereby driving net bookings and top-line growth of ATVI in the near term.
Moreover, the growing popularity of Diablo II: Resurrected is expected to boost top-line growth. ATVI’s strong liquidity position and free cash flow generation ability are noteworthy. ATVI currently carries a Zacks Rank #2 (Buy).
On Jul 18, 2023, Activision Blizzard declared that its shareholders would receive a dividend of $0.99 per share on Aug 17, 2023. It has a dividend yield of 1.1%. Over the past five years, ATVI has increased its dividend four times, and its payout ratio presently stays at 15% of earnings. Check ATVI’s dividend history here.
Morgan Stanley (MS): Free Stock Analysis Report
NRG Energy, Inc. (NRG): Free Stock Analysis Report
Activision Blizzard, Inc (ATVI): Free Stock Analysis Report
The Bank of New York Mellon Corporation (BK): Free Stock Analysis Report
Unum Group (UNM): Free Stock Analysis Report
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This article originally appeared on Zacks
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