Investing

3 High-Yield Dividend Stocks to Buy Before the Fed Slashes Interest Rates

Lee Jackson

Published: August 9, 2024 8:44 am

24/7 Wall St. Insights

• Traders are betting that the first federal funds rate cut will come as early as September.
• The current federal funds rate is 5.25% to 5.50%, with the effective rate at 5.33%.
• Grab this free report today: Access 2 legendary, high-yield dividend stocks Wall Street loves.

Investors love dividend stocks because they provide dependable income and a great opportunity for solid total return. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or portfolio consists of income and stock appreciation.

Let’s take a closer look at the concept of total return. Imagine you purchase a stock at $20 that offers a 3% dividend. If the stock price rises to $22 within a year, your total return is 13%. This is calculated by adding the 10% increase in stock price to the 3% dividend.

After a slew of data showing that inflation is easing, many on Wall Street feel that the first cut for the benchmark rate could come in as early as September. The Federal Reserve has held the current funds level the same since late July 2023. While a 25-basis-point decrease likely won’t help the economy, it could increase the buying of high-yield dividend stocks as investors start to plan for an easing cycle that could pick up steam in 2025.

We screened our 24/7 Wall St. high-yield dividend stock universe, looking for companies that will benefit from the coming rate reduction, and found three stocks that growth and income investors should grab right now. They should also take advantage of this free dividend legends report.

Why are we covering this

While nobody knows for sure when the Federal Reserve will start to cut the fed funds rate, the reality is that the economy is slowing, and while still above the started benchmark level of 2%, inflation has been coming down. If they don’t cut rates in September, to avoid a potential political conflict of interest, it’s a given that after the election in November, a series of rate cuts will begin. As interest rates drop, high-yield dividend stocks will return to favor as passive income alternatives for many investors.

Altria

This tobacco company offers value investors a great entry point. Now trading at a cheap 8.8 times estimated 2025 earnings, it pays a rich 7.95% dividend. Altria Group Inc. (NYSE: MO) manufactures and sells smokable and oral tobacco products in the United States through its subsidiaries.

The company provides cigarettes primarily under the Marlboro brand, as well as:

• Cigars and pipe tobacco, principally under the Black & Mild brand
• Moist smokeless tobacco and snus products under the Copenhagen, Skoal, Red Seal, and Husky brands
• on! Oral nicotine pouches

It sells its tobacco products primarily to wholesalers, including distributors and large retail organizations, such as chain stores.

Altria used to own over 10% of Anheuser-Busch InBev N.V. (NYSE: BUD), the world’s largest brewer. The company sold 35 million of its 197 million shares through a global secondary offering. That represents 18% of their holdings but still leaves a hefty 8% of the outstanding shares in their back pocket. They also announced a $2.4 billion stock repurchase plan partially funded by the sale.

Enterprise Products Partners

This company is one of the largest publicly traded energy partnerships and pays a solid 7.07% dividend. Enterprise Products Partners L.P. (NYSE: EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products.

It operates in four segments:

• NGL Pipelines & Services
• Crude Oil Pipelines & Services
• Natural Gas Pipelines & Services
• Petrochemical & Refined Products Services

The NGL Pipelines & Services segment offers natural gas processing and related NGL marketing services.

It operates natural gas processing facilities located in:

• Colorado
• Louisiana
• Mississippi
• New Mexico
• Texas
• Wyoming

NGL pipelines, NGL fractionation facilities, NGL and related product storage facilities, and NGL marine terminals.

The Crude Oil, Pipelines & Services segment operates crude oil pipelines, storage terminals, and marine terminals, including a fleet of approximately 250 tractor-trailer tank trucks transporting crude oil. It also engages in crude oil marketing activities.

The Natural Gas Pipelines & Services segment operates natural gas pipeline systems to gather, treat, and transport natural gas. It leases underground salt dome natural gas storage facilities in Napoleonville, Louisiana; owns an underground salt dome storage cavern in Wharton County, Texas; and markets natural gas.

The Petrochemical & Refined Products Services segment operates propylene fractionation facilities, including:

• Propylene fractionation units and propane dehydrogenation facilities and related marketing activities
• Butane isomerization complex and related deisobutanizer operations
• Octane enhancement
• Isobutane dehydrogenation
• High-purity isobutylene production facilities

It also operates refined products pipelines and terminals and ethylene export terminals and provides refined products marketing and marine transportation services.

Gaming and Leisure Properties

While well off the investment radar, this company offers investors a rich 6.18% dividend and solid total return potential. Gaming and Leisure Properties Inc. (NASDAQ: GLPI) acquires, finances, and owns real estate property for gaming operators in triple-net lease arrangements.

Under a triple-net lease arrangement, the tenant assumes responsibility for all property-related costs, including maintenance, insurance, taxes, and utilities. This arrangement allows Gaming and Leisure Properties to enjoy a steady income stream while the tenant manages the property’s operational expenses.

In February of this year, Gaming and Leisure Properties acquired the real estate assets of Tioga Downs Casino Resort for $175 million and entered into a 30-year master lease agreement. In addition, revenues for the first quarter were up 5.8% year over year.

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