Wall Street is likely to witness its worst ever December since the Great Depression of 1931. The recent market skepticism regarding the future growth potential of U.S. stocks have been fueled by a plethora of factors – the recent rate hike and Fed’s tight monetary policy, fear of partial government shutdown, conflicting news related to trade war between the United States and China and concerns of a global economic slowdown.
At this juncture, investment in high-dividend paying stocks, over a reasonable time period, is likely to bring good returns, especially when the market is plagued with severe volatility. Consequently, it would be a prudent investment decision to bank on stocks with a favorable Zacks Rank promising strong dividend yield in a bid to capitalize on future growth.
Fed’s Tight Monetary Stance
On Dec 19, the Fed raised benchmark lending target rate by 0.25% to the range of 2.25-2.50%. This was the fourth rate hike by the central bank in 2018. Investors are now concerned regarding two more rate hikes in 2019 and continuation of Quantitative Tightening through which the central bank is reducing the size of its balance sheet by $50 billion each month by redeeming government debts and mortgage bonds.
This implies that a massive $600 billion will not be invested in sovereign bonds in 2019. This will significantly reduce demand for U.S. government bonds, resulting in lower bond price and higher yields. Consequently, interest rate will go up in the long term.
Concerns Over Partial Government Shutdown
On Dec 21, President Donald Trump tweeted that if the U.S. Congress does not approve $5 billion or more for the construction of a wall or “steel slats” at the United States – Mexico border, then it is likely to escalate to long-term partial shutdown of the U.S. government.
Notably, on Dec 18, Senate Majority Lead Mitch McConnell said that a proposed short-term government funding plan worth $5 billion border security fencing was rejected by Democrat representatives. Notably, Trump needs Democrat support in Senate to pass the bill.
Consequently, partial government shutdown commenced since mid-night Dec 21. With both President Trump and Democrats resolutely standing their ground, remain resolutely opposed, the ongoing shutdown is likely to persist.
Conflicting News on US-China Trade War
On Dec 21, Peter Navarro, President Trump's trade adviser said that it is highly unlikely that the United States and China will arrive at a permanent economic agreement during the 90-day ceasefire period agreed by both sides.
However, on Dec 19, Treasury Secretary Steven Mnuchin said that the United States and China will meet in January 2019 to seek an amicable solution to its long running trade war. Munchin further added, the two sides are engaged in telephonic conversation and a face-to-face meeting is around the corner. Chinese officials also confirmed Munchin’s statement.
Our Top Picks
At this juncture, it will be lucrative to invest in high-yielding stocks in order to ensure a steady income stream. We narrowed down our search to five such stocks with a Zacks Rank #1 (Strong Buy) and high-dividend yield. You can see the complete list of today's Zacks #1 Rank stocks here.
The chart below depicts price performance of our five picks in the last three months.
CrossAmerica Partners LP CAPL engages in the wholesale distribution of motor fuels, and ownership and leasing of real estate used in the retail distribution of motor fuels in the United States. It has a dividend yield of 15.4%. The company has expected earnings growth of 125% for current year. The Zacks Consensus Estimate for the current year has improved by 109.1% over the last 60 days.
Arbor Realty Trust Inc. ABR is a specialized real estate finance company which invests in a diversified portfolio of structured finance assets in the multifamily and commercial real estate markets. It has a dividend yield of 10.8%. The company has expected earnings growth of 14.4% for current year. The Zacks Consensus Estimate for the current year has improved by 2.6% over the last 60 days.
Prospect Capital Corp. PSEC is a specialized real estate finance company which invests in a diversified portfolio of structured finance assets in the multifamily and commercial real estate markets. It has a dividend yield of 12.4%. The company has expected earnings growth of 20.3% for current year. The Zacks Consensus Estimate for the current year has improved by 11.8% over the last 60 days.
Plymouth Industrial REIT Inc. PLYM is a full service, vertically integrated real estate investment company across the United States. It has a dividend yield of 11.9%. The company has expected earnings growth of 218.4% for current year. The Zacks Consensus Estimate for the current year has improved by 4.3% over the last 60 days.
Global Net Lease Inc. GNL is a real estate investment trust which focused on sale-leaseback properties primarily in the United States and Europe. It has a dividend yield of 12.1%. The company has expected earnings growth of 7% for current year. The Zacks Consensus Estimate for the current year has improved by 4.4% over the last 60 days.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
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Prospect Capital Corporation (PSEC) : Free Stock Analysis Report
CrossAmerica Partners LP (CAPL) : Free Stock Analysis Report
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Global Net Lease, Inc. (GNL) : Free Stock Analysis Report
PLYMOUTH IND RE (PLYM) : Free Stock Analysis Report
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