Now that the stock market is going into a new trend and cycle, sparked by the recent Federal Reserve (the Fed) interest rate cuts initiating a potential money shift over the next few quarters, investors might start to prefer safer spaces and stocks to put their capital into. Among all these preferences, the income aspect could make it to the top of the list now.
This is because, as interest rates come down, savings account yields could also decrease significantly. Seeing this change in liquid capital funds and accounts could lead investors to new stocks with attractive yields through dividend payments. It is important to get ahead of the trend through today’s stock list before they become popular and the yield is not there tomorrow.
Bonds are now back above a 4% annual yield for the ten-year treasury bond, which may not last long since they were below 3.8% even before the Fed cut interest rates, so buying into the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) can be a good idea. Then there is the real estate sector, known for its stability and rental income. Stocks like Realty Income Co. (NYSE: O) and Simon Property Group Inc. (NYSE: SPG) come as a prime choice for high dividends.
Lock in Today’s Bond Yields with This High-Yield ETF Before They’re Gone
Now that this bond ETF has traded down by over 10% from its 52-week high of roughly $101.5 a share, investors have a new opportunity to get in a lock their dividend yields through treasury bonds, arguably one of the safest and most reliable ways to collect dividend payouts.
At today’s price, the ETF’s annual payout of $3.65 a share would translate into an annualized dividend yield of up to 3.86% to beat inflation and be above U.S. GDP growth. More than that, now investors know the ETF offers a double-digit upside on top of this reliable dividend to sweeten the deal.
There has also been some institutional interest in this ETF lately. Knowing that the Fed will likely continue to cut interest rates in the next few meetings, bringing yields lower and bond prices higher, investors are likely looking to lock in not only today’s prices but also today’s yields.
Those at Northwestern Mutual Wealth Management decided to boost their holdings in the ETF by as much as 2,810% as of August 2024, netting their position at $2.99 billion today or 5.5% ownership in the entire ETF. More than that, Stanley Druckenmiller (who is responsible for George Soros’ returns) has also rotated his profits from NVIDIA Co. (NASDAQ: NVDA) into this ETF.
Realty Income: Inflation-Beating Monthly Dividend for Consistent Returns
Shares of Realty Income, one of the few real estate investment trusts (REITs) that offer a monthly dividend payment, offer a chance to lock in a reliable monthly income. Even though the stock trades at its 52-week high, some on Wall Street believe there is still some upside left.
Analysts at Stifel Nicolaus have reiterated their “Buy” ratings on Realty Income stock, a view coupled with a price target of up to $70.25 a share. This directly calls for as much as 13.7% from where it trades today, not to mention a new yearly high for the stock.
Through the portfolio’s stability and rental income, management now offers an annual dividend payout of $3.16 a share, or an annualized yield of 5.1%, which is near the highest recorded yield of 6.6%. Like any other investor looking to lock in stable and attractive income sources, some institutional buyers decided to add to their Realty Income stock positions.
As of August 2024, Legal & General Group boosted its holdings by 4.5%, an allocation that brought its net investment in Realty Income stock up to $467.5 million today, or 1.4% ownership in the REIT. Based on this property portfolio's quality and growth, broader markets are also stepping up to the plate.
Compared to the rest of the REIT industry’s average 38.3x P/E valuation, Realty Income stock trades at a much higher 57.0x multiple today. This shows a willingness to overpay from the overall market, which is always a good sign for bulls.
Institutions Lead the Charge on Simon Property Group Stock Ahead of Market Moves
Over the past quarter, Simon Property Group stock has seen a few institutional buyers come in to lock in the high dividend yield offered today. This is another REIT trading at its 52-week high to show investors that momentum has been on its side during the past few weeks, but some think there could be more.
Knowing that lower interest rates could spark new trends in the consumer discretionary sector, which make up for all the tenants at Simon’s properties, management feels comfortable paying a $8.20 a share dividend per year. At today’s price, this payout would translate into an annual dividend yield of up to 4.85% today to also beat inflation rates and GDP growth.
Those at HSBC Holdings felt it was the right time to boost their holdings in the REIT by 6.7% as of August 2024, bringing their net position to $162.7 million today. Getting ahead of the curb is common for institutions this big, but they weren’t alone in their bullish views.
Analysts at Piper Sandler recently set a price target of $175 a share for Simon Property Group, calling for a net upside of 3.5% from today’s price. This view is coupled with Evercore's new “Outperform” rating, which has a $172 price target.
