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5 Top Dividend Stocks to Gain From a Dovish Federal Reserve

Swarup Gupta

As trade tensions continue to spook investors, two of America’s leading central bank functionaries have said that further rate cuts may be necessary in 2019. Trade-related uncertainties will likely be the primary trigger for any such decision. Of course, they think it is too early to predict when such reductions will take place and with what intensity.

These are words which will surely please market participants. Apart from rate-sensitive stocks, which will gain from softer rates, dividend-yielding stocks will also benefit. Not only will conservative investors seek them out, growth-oriented investors will also try to gain from the price surge in high-yield stocks.

Bullard Calls for Further Cuts, Yields Plunge

Given the backdrop of rising trade tensions, both President Trump and leading investors have been urging the Fed to reduce rates even more to boost the economy. On Aug 6, St. Louis Fed President James Bullard indicated that such cuts are likely but not a certainty as of now.

Speaking to the National Economists Club of Washington, D.C., Bullard agreed that “additional policy action may be desirable.” Bullard also thinks that trade tensions have had a “chilling” impact on business investment. He also believes that the trade war is unlikely to end any time soon.

Bullard’s belief that further monetary easing may be necessary was borne out by the plunge suffered by government bond yields. On Aug 6, U.S. Treasury yields lingered near multi-year lows. This was largely a result of investors seeking out safe havens to hedge against the effects of the U.S.-China trade war.

Daly Focusing on Trade War, Tensions to Continue Till 2020

Meanwhile, San Francisco Fed President Mary Daly said on Aug 5 that she will keep a close watch on the ongoing trade war. She thinks it is necessary to do so as it is a key factor in determining the central bank’s next step on rates. Daly also thinks that the current state of U.S.-China trade relations is worrying.

Daly supports the Fed’s first rate cut in more than a decade. She believes it was necessary to prop up a sluggish domestic economy given concerns over global growth and trade-related uncertainty. In keeping with Bullard’s views, Daly thinks a slowing global economy and falling business investment could necessitate further rate cuts later this year.

Meanwhile, Goldman Sachs GS warned its clients on Aug 5 that a trade deal “now looks far off” with both the United States and China “taking a harder line.” The financial major thinks an agreement is unlikely before the 2020 presidential polls. Trump is likely to keep his fresh tariffs in place on Election Day.

Our Choices

Key Fed policymakers recently said that additional rate cuts may be required later this year to maintain U.S. economic momentum. Continuing U.S.-China trade tensions and global economic sluggishness could easily require the central bank to step in with further monetary easing.  

Investing in dividend stocks, which have registered strong price gains this year, looks prudent. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

Genesis Energy, L.P. GEL operates crude oil common carrier pipelines and is an independent gatherer and marketer of crude oil in North America.

Genesis Energy has a VGM Score of B. The stock has a dividend yield of 10.2%. It has gained 17.3% year to date.

BHP Group BHP is one of the world's largest diversified resource companies with operations spanning several continents.

BHP Group has a VGM Score of A. The stock has a dividend yield of 4.4%. It has gained 4.4% year to date.

Santander Consumer USA Holdings, Inc. SC is a technology-driven consumer finance company focused on vehicle finance and unsecured consumer lending products.

Santander Consumer USA has a VGM Score of A. The stock has a dividend yield of 3.4%. It has gained 45.8% year to date.

Federated Investors, Inc. FII is a publicly owned investment management company.

Federated Investors has a VGM Score of B. The stock has a dividend yield of 3.3%. It has gained 23.5% year to date.

First American Financial Corporation FAF serves homebuyers and sellers, real estate professionals, loan originators and servicers, commercial property professionals, homebuilders and others involved in residential and commercial property transactions with products and services specific to their needs.

First American has a VGM Score of A. The stock has a dividend yield of 3.1%. It has gained 23.3% year to date.

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Genesis Energy, L.P. (GEL) : Free Stock Analysis Report
Santander Consumer USA Holdings Inc. (SC) : Free Stock Analysis Report
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
Federated Investors, Inc. (FII) : Free Stock Analysis Report
First American Financial Corporation (FAF) : Free Stock Analysis Report
BHP Billiton Limited (BHP) : Free Stock Analysis Report
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