The Federal Reserve gave stock markets a huge shot in the arm as it delivered a sizeable 50 bps interest rate cut, far larger than many pundits were expecting. It wasn’t just stocks, which benefit greatly from a lower-rate environment, that surged higher on the news. Gold and Bitcoin (BTC) shot higher following news of the Fed’s big cut.

It’s unclear just how much of the falling-rate climate is baked in right here. Still, it’s never a bad idea to prepare for the rate cuts to keep coming. While a low-rate world is good news for most investors, retirees need to come to terms with lower yields and rates on dividend stocks and certificates of deposit (CDs), respectively. If you’ve checked lately, you’ve probably already noticed that rates and yields are already well off their peaks. As the Fed continues lowering the bar on rates, there’s a good chance rates and yields could continue to drop.

While it certainly would have been nice to land a 4% annual return without having to risk one’s principal, I do think there’s no reason to fret at the low-rate environment to come if you’re a retiree who doesn’t want to overextend themselves on risk to obtain a level of passive income to meet their retirement lifestyle.

In this piece, we’ll explore two strategies to help your passive income portfolio adapt as the Fed looks to keep the rate cuts coming.

Key Points About This Article

• Retirees may wish to consider inching back into “risky” assets as rates on risk-free securities creep lower in anticipation of future rate cuts.
• Johnson & Johnson and American Tower seem like solid income plays for investors seeking a good mix of dividend growth and relative safety.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Cheap Dividend Stocks are Worth Buying Before Their Yields Fall Further

With the first rate cut in the books, some retired income investor may be kicking themselves for not punching their ticket to their favorite dividend stocks sooner. Depending on where you look, dividend yields are slightly below where they were a few months ago when a 50bps rate cut from the Fed would have been overly dovish thinking. Of course, you can’t turn back time and snatch up the best of bargains from a few months ago, but I’d argue that the broad basket of dividend plays is still relatively cheap, with yields still on the high end.

Johnson & Johnson (NYSE:JNJ) stock is just a blue-chip dividend payer that still boasts an attractive yield just north of 3%. As the nearly $400 billion pharmaceutical behemoth looks to new drugs as a source of growth while its med tech segment shrugs off recent headwinds, you’ll also get some impressive (dividend) growth out of the name. Indeed, the talc baby powder lawsuit headlines are continuing to flood in, but the real opportunity, I believe, lies in the company’s ever-improving long-term growth prospects.

At 15.15 times trailing price-to-earnings (P/E), I’d argue that JNJ stock is a dividend grower that can help give you consistent raises through your golden years. So, if you’re looking beyond risk-free assets for income that can grow, JNJ is one of many names to check out.

The Same Goes for Real Estate Investment Trusts (REITs)

Don’t forget about the real estate investment trusts (REIT), many of which still offer sizeable yields following the Fed’s first cut. As rates come down, some of the REITs that took the most damage from the rate hike-driven sell-off of 2022 could stand to gain.

American Tower (NYSE:AMT) is a cell tower REIT that’s already spiked higher ahead of the rate cuts. That said, I still think there’s room to run as the company looks to “floor it” on capital investments. Looking ahead, the company has plans to spend as much as $1.7 billion on growth projects. As rates come down, look for American Tower to get even more aggressive as the rise of artificial intelligence (AI) paves the way for better connectivity.

After soaring close to 39% in the past year, AMT stock now yields a relatively mild 2.79%. Despite the lower yield, American Tower seems well-equipped to grow its payout quicker than rivals, especially as it gets a break in the form of markedly lower rates. At 34.8 times forward P/E, AMT stock may not seem like a bargain, but if you’re looking for a top-tier dividend grower, it’s hard to overlook the name while it’s still off 20% from its high.

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