At the time of this writing, Wall Street awaits a lower than expected Fed Funds rate cut from Fed Chairman Jerome Powell. Due to disappointing PPI numbers and the continued threat of inflation, a 25 basis point cut is now anticipated, as opposed to a larger one from projections of a month ago.  

Investment Self-Defense

The market has unquestionably grown more volatile over the past few months. With inflation slowed down but still nearly twice that of its rate in 2020, the economy is in a fragile state. While the stock market has regained a level to the Dow 40,000 region, another 2,000 point drop, such as what occurred on August 5, 2024, can easily happen again, and worse. In bear market environments, defensive sector stocks are a safe haven until the financial climate improves. Sectors with steady revenues due to their industry’s constant demand requirements, such as utilities, precious metals, food, shelter, and healthcare are considered defensive.

24/7 Wall Street has an enormous database of dividend stocks from all industries that meet a wide range of investor criteria. For a $5,000 total investment the three stocks below all sport the following features, for investors looking to maximize their ROI under bearish market conditions, as of the time of this writing:

• Each has a market price under $15 for over 100 shares with a $1,600 investment. 
• All of them can be categorized as defensive sector companies.
• Each one has a yield in double-digits.
• Each stock has years of uninterrupted dividend payment history.

Vale S.A.

Stock #1: Vale S.A. (NYSE: VALE)

Yield: 17.39%

Shares for $1,666: 161.5

Annual Dividend Amount: ~$289.72

With a $45 billion market cap, Vale S.A., headquartered in Rio De Janeiro, is one Brazil’s top conglomerate entities. As the `B’ in BRICS, Brazil, along with Russia, India, China and South Africa, have collectively become a formidable economic bloc with currencies that can boast tangible assets to guarantee them. 

One of the most resource rich nations on the planet, Brazil has a number of multinational companies that handle the cultivation, development, production and sales of those raw materials and commodities. 

While Vale S.A.’s hydropower plants and rail transportation operations are essential utilities for Brazil, its global-scale mining activities with copper, in particular, are where analysts believe the long term upside for the stock lies. 

The huge amount of energy required to power AI and the proliferation of data centers needed to operate AI means that the corresponding electrical infrastructure must grow commensurately. As such, this means that copper electrical wire demand is expected to soar in the near and forthcoming future. This overwhelming power demand is also a part of what is fueling the return to oil and gas, since wind and solar power sources are proving inadequate for the task.

Since the release of ChatGPT, copper futures have gained 19% with spot prices rising 12% on the London Metal Exchange. Singaporean commodity trading titan Trafigura estimates that the combined needs of cumulative growth in AI, electricity demand, and EVs will create an added demand of 10 million pounds of copper over the next 10 years.  Its Salobo copper mines are the largest in Brazil. Vale S.A. has already budgeted $3.3 billion to expand its copper production to 500,000 MT per year by 2030 from its 326,000 high of 2023.

The company experienced some downward pressure in recent months over succession questions, but these concerns have been resolved with the announcement that former CFO Gustavo Pimenta would be promoted to CEO earlier in September.

Vale S.A. ADRs trade on the NYSE, but the stock is also listed on the Rio De Janeiro, Jakarta, Paris, and Madrid exchanges as well. 

PennyMac Mortgage Investment Trust

Stock #2: PennyMac Mortgage Investment Trust (NYSE: PMT)

Yield: 11.59%

Shares for $1,666: 119.85

Annual Dividend Amount: ~$193.08

Founded in 2009, and based in Westlake Village, CA, PennyMac Mortgage Investment Trust is a Real Estate Investment Trust (REIT) registered with the SEC. REITs must disburse 90% of profits in order to satisfy their tax exemption status. PennyMac is presently the largest US correspondent lender of mortgages. 

The REIT sector in itself is not necessarily a defensive sector, as it can take many different configurations, each which contains a varying degree of risk during a bear market. REITs that directly own property, for example, are at greater risk of defaults on rent, property damage, and other concerns. In the case of PennyMac Mortgage Investment Trust, it acts as a large correspondent lender dealing with diversified collection bundles of securitized mortgages, so it is 2 or more times removed from the physical real estate properties. 

Under its Credit Sensitive Strategies segment, PennyMac engages in Credit Risk Transfer swaps, CRT securities, subordinate mortgage-backed securities, distressed loans, and direct real estate finance. Agencies such as Fannie Mae and Freddie Mac use CRT swaps to provide a vehicle for offloading risk.

PennyMac’s Interest Rate Sensitive Strategies division handles agency and non-agency senior mortgage-backed securities,  interest rate spreads, mortgage servicing rights, and hedging strategies.

The Correspondent Production arm acquires, pools, and resells mortgages or securitizes them for sale to government sponsored entities. 

Fortitude Gold Corporation

Stock #3: Fortitude Gold Corporation (OTC: FTCO)

Yield: 11.03%

Shares for $1,666: 378.63

Monthly Dividend Income:~$15.31

Annual Dividend Income: ~$183.75

One of the most reliable asset classes to hedge against inflation is precious metals. However, with gold at over $2,580 per ounce, investors with deep pockets have already been accumulating it and driven the world market price up. Physical gold and any ETF that holds gold is likely to move in tandem, so the next best opportunity for less affluent individual investors looking for a lagging indicator to latch onto might be in a gold mine stock that also delivers a sizable dividend.

With ownership of five gold mine properties in Nevada, Colorado Springs, CO headquartered Fortitude Gold Corporation is a gold and silver mining company with ongoing operations.Their flagship project is the Isabella Pearl Mine, which has 601 unpatented claims stretching across  10,430 acres in Nevada. Proven reserves can potentially yield up to 220,000 oz. of gold and 1.3 million oz. of silver. 

Fortitude Gold Corporation is a gold and silver mining company headquartered out of Colorado Springs, CO. With ownership of five gold mine properties in Nevada, its flagship project is the Isabella Pearl, which is 10,400 acres. Fortitude’s proven reserves can potentially yield up to 220,000 oz. of gold and 1.3 million oz. of silver. 

At the end of July, Fortitude Gold announced hitting multiple oxide gold drill intercepts at and near surface from the Scarlet North target along the company’s Isabella Pearl trend. The Scarlet North target lies 700 meters northwest of the Isabella Pearl heap leach and process facility. Intercepts include 9.14 meters grading 2.33 grams per tonne (g/t) gold within 16.76 meters grading 1.58 g/t gold. The Company also released multiple rock chip surface samples from a new, undrilled target in the Scarlet North area, the highest assaying 2.24 g/t gold.

As an added plus for income conscious investors, Fortitude Gold pays its dividend distribution monthly, as opposed to quarterly. 

Name	Yield	Annual Amount
Vale S.A. (NYSE: VALE)	17.39%	$289.72
PennyMac Mortgage Investment Trust (NYSE: PMT)	11.59%	$193.08
Fortitude Gold Corporation (OTC: FTCO)	11.03%	$183.75
Total Annual Passive Income		$666.55

 

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