3 Best Dividend Stocks to Buy as Interest Rates Fall

September 03, 2024 at 07:08 AM EDT

Dividend stocks

The stock market and the economy frequently move in different directions. So, when you hear that the Federal Reserve is getting ready to lower interest rates, likely as early as September, it’s important to understand the interplay between inflation and employment.

In this case, one of the catalysts for a decelerating inflation rate is a ticking up in unemployment. This has the added consequence of reducing labor cost pressures. Add it all up, and consumers are facing prices that continue to rise, albeit more slowly, while facing more insecurity about their personal finances.

That’s not good for corporate earnings in the coming quarters, and it’s why the Fed wants to act now to give the economy a boost. Investors can find opportunities in dividend stocks. When interest rates fall on risk-free assets (like Treasury notes), dividend payouts become more attractive. That's particularly true when the companies are in defensive industries like the three stocks we’re highlighting below.

This Dividend King is Poised for a Recovery

Hormel Foods Corp. (NYSE: HRL) is a dividend king with 59 consecutive years of dividend increases and a yield of 3.84% as of this writing. The total return on HML stock is negative over the last five years. But the reason why is inflation. Hormel is heavily reliant on poultry and pork prices, which has led to pricing issues and uneven performance throughout its product portfolio.

However, Hormel faces many issues that bedevil other consumer staples stocks. But lower interest rates may set up a win-win for the company. If consumers continue to shift more to eating at home, Tyson will benefit because it offers high protein food that is budget friendly. On the other hand, if the consumer wants to eat outside the home, Tyson has a presence in the foodservice sector including restaurants and entertainment venues.

Investors will learn more when the company reports earnings in early September. However, it’s important to note that analysts from Citigroup Inc. (NYSE: C) upgraded Hormel from Neutral to Buy while increasing its price target to $37 from $32. If Hormel backs that rating up with a solid earnings report, HRL stock may be poised for a strong rally.

Enbridge is a Bet on the More Likely Outcome

Enbridge Inc. (NYSE: ENB) is a midstream energy company that operates over 18,000 miles of pipelines throughout North America. The Canadian-based company also offers a dividend with an attractive 6.64% yield.

ENB stock is up about 9.8% in 2024, but many investors were expecting a lot more from energy stocks. While the price of crude oil has gone up, demand has gone down as consumers and businesses are feeling pinched.

An interest rate cut is likely to produce a best-case scenario for oil prices where demand increases at a time when geopolitical tensions are likely to keep oil prices elevated. And no matter who wins the November election, the United States will have to increase production even above current record levels. Enbridge will be the company getting paid to move that product around the country. Therefore, investing in Enbridge is a bet on the most likely outcome occurring.

Despite Headwinds, HSY Stock Offers May Offer investors a Sweet Dip to Buy

The Hershey Company (NYSE: HSY) offers investors a safe dividend that has increased for 15 consecutive years and has a yield of 2.84% as of this writing. The more troubling issue for long-term investors is the total return on HSY stock which is 34.8% in the last five years.

That’s a little deceptive because Hershey's stock is down approximately 30% since hitting an all-time high in May 2023. But investors typically have a “what have you done lately mindset.” And right now, there are some headwinds for Hershey.

One is elevated cocoa prices, which could be an issue through the first half of 2025. The more difficult issue to define is the company's threat from GLP-1 weight loss drugs. The evidence is becoming more than anecdotal that consumers are finding reduced cravings for some of their favorite indulgences, like chocolate.

With all that said, few companies command the market share and have the pricing power that come with a brand name like Hershey’s. And the current stock price woes seem to have more to do with earnings than revenue. We’re entering the time of year that is a sweet spot for Hershey, and it could be one for investors as well.

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3 Best Dividend Stocks to Buy as Interest Rates Fall

This Dividend King is Poised for a Recovery

Enbridge is a Bet on the More Likely Outcome

Despite Headwinds, HSY Stock Offers May Offer investors a Sweet Dip to Buy

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