{"id":1304,"date":"2023-10-15T05:26:53","date_gmt":"2023-10-15T05:26:53","guid":{"rendered":"https:\/\/connectwithfund.com\/investment\/2-contrarians-only-dividends-that-will-fly-as-rates-fall\/"},"modified":"2023-10-15T05:26:54","modified_gmt":"2023-10-15T05:26:54","slug":"2-contrarians-only-dividends-that-will-fly-as-rates-fall","status":"publish","type":"post","link":"https:\/\/connectwithfund.com\/?p=1304","title":{"rendered":"2 \u2018Contrarians-Only\u2019 Dividends That Will Fly As Rates Fall"},"content":{"rendered":"
\n

The 10-year Treasury yield\u2019s latest journey to the stars is setting up a terrific opportunity for us to \u201clock in\u201d historically high dividend yields\u2014and upside, too.<\/p>\n

The time to make our move is now. Here\u2019s why: the surging yield on the \u201clong bond\u201d has hit stocks\u2014especially dividend<\/em> stocks\u2014hard. But this surge is completely unsustainable.<\/em><\/p>\n

Look, over the last few weeks, I\u2019ve been saying the 10-year would bump its head on the \u201c4.3% ceiling\u201d and retreat. The fact that it\u2019s blown through<\/em> that ceiling only means its coming fall will be that much harder\u2014and our favorite dividend stocks will rip that much higher in response!<\/p>\n

We don\u2019t need to get too far into the economic weeds here: GDP, CPI, PCE\u2014it\u2019s all TMI!<\/p>\n

Here\u2019s the upshot: this latest run in the 10-year yield is overdone because inflation isn\u2019t really<\/em> in a spiral higher. In fact, it\u2019s the opposite. Core PCE (personal consumption expenditures\u2014ok, we do<\/em> have to talk at least one economic indicator) is falling fast:<\/p>\n

<\/fbs-ad><\/p>\n

This is the Fed\u2019s preferred inflation indicator, which excludes<\/em> food and energy prices. Which, some argue, is not appropriate because oil prices are high again.<\/p>\n

I disagree<\/em> that high oil is worrisome for inflation. Future inflation<\/em>, that is. Fact is, high crude slows the economy. It probably already has, which is why we\u2019ve seen crude fall off in the last few days. And the Fed\u2019s rate-hiking mission will<\/em> bring a recession.<\/p>\n

Then, when the economy slows, the Fed will ease rates. And rate-sensitive stocks (read: dividend payers) will skyrocket from their current lows.<\/p>\n

Here are two that have been (overly) washed out in the 10-year Treasury yield\u2019s rise, making now a tempting time to buy and lock in their (temporarily) elevated yields.<\/p>\n

This Dividend-Growth REIT Is Flashing 3 Proven Buy Indicators<\/h2>\n

In the short-term, REITs trade like bonds, which is why they\u2019ve taken a header in the latest rate jump. But they\u2019re even better because they\u2019re real businesses with predictable cash flows, and dividends that often grow.<\/p>\n

These days, we\u2019re particularly keen on industrial REITs for one reason: the onshoring (mega)trend, which is driving more companies to pull out of basket cases like China and Russia and return to friendly US shores. They\u2019re also nicely positioned as online shopping\u2014the Energizer Bunny of investing trends\u2014keeps on growing.<\/p>\n

The biggest of the warehouse-owning bunch is Prologis (PLD),<\/strong> which has a staggering 1.2 billion square feet of manufacturing and warehouse space across the US. PLD yields 3.1%, which is okay, but focusing on that number misses the point.<\/p>\n

Here\u2019s the real<\/em> story on that yield: it\u2019s the highest it\u2019s been in five years\u2014and since yields move in opposition to prices, it\u2019s our first indicator that this one is overly washed out.<\/p>\n

That fact becomes clearer when you see that its payout growth has found another gear lately. Check out the two larger-than-normal hikes on the right side of the chart below.<\/p>\n

Those confident payout hikes from management are our second indicator. There\u2019s something else about this chart I want to draw your attention to, as well.<\/p>\n

See how every time the stock drops below the payout trendline, it quickly bounces back?<\/p>\n

The fact that PLD\u2019s price is again behind its payout growth is our third indicator that it\u2019s undervalued. Once the extreme fear we\u2019re seeing bleeds out of the market, investors will bid the price back up above<\/em> the payout, pushing the yield back down to its normal level in the mid-2% range.<\/p>\n

Of course, we can\u2019t talk about REITs without addressing borrowing costs, as they tend to carry a fair amount of debt to build and maintain their properties. This is why first-level investors often shun REITs when rates are high, and that\u2019s been the case with PLD, which is about 3% below where it started the year.<\/p>\n

But PLD\u2019s balance sheet is tight<\/em>, with debt amounting to just 25% of its market cap and 30% of assets. Those kinds of numbers are rare in REIT-land, and they\u2019re enough on their own to wash away any worries about high rates.<\/p>\n

It gets better: PLD pays a weighted average interest rate of just 2.9%, with a weighted average term of 9.7 years. <\/em>And it has no major debt maturing until 2026.<\/p>\n

Which brings us back to onshoring, which has had PLD\u2019s warehouses 97% occupied as of the end of August. And the REIT\u2019s steady rent hikes, thanks to a lack of warehouse space in the US, are expected to boost cash flow by about 8% this year.<\/p>\n

All of this makes the stock\u2019s latest pullback a buying opportunity. But that will end fast once the 10-year Treasury yield starts its descent back to earth.<\/p>\n

This Big-Tech Dividend Is Finally<\/em> on Our Radar<\/strong><\/h2>\n

Normally, big-tech dividends don\u2019t excite us here at Contrarian Outlook. Their current yields are just too small! But Apple (AAPL)<\/strong> is grabbing our attention after tumbling a stunning 10% from its all-time high, which it just hit on July 28, 2023.<\/p>\n

See the stock\u2019s momentum picking up on the right side of that chart? It\u2019s a clear sign the herd is starting to pick up on that fact\u2014and that nicely sets us up for quick gains here.<\/p>\n

To be sure, the Cupertino colossus is no star on the yield front, paying around 0.6%. That\u2019s the price of popularity!<\/p>\n

But it\u2019s tough to argue that Apple is not <\/em>a value-creation machine. Share buybacks? Check. Tim Cook & Co. continued to repurchase the company\u2019s stock, thereby lowering the number outstanding (purple line below) through the 2022 mess, at a sweet bargain, too.<\/p>\n

That move looks particularly smart now, after the stock was caught up in the AI-powered run-up this year.<\/p>\n

More impressive, the company manages to fund these buybacks and grow its payout (up 120% in the last decade) while funding the massive R&D spend it needs to keep leading the tech sector: from its 2015 fiscal year through fiscal 2022, it\u2019s boosted research spending more than threefold, from $6 billion to $26 billion.<\/em><\/p>\n

To be sure, this one doesn\u2019t look cheap on a P\/E basis, trading around 29-times trailing-12-month earnings as I write this.<\/p>\n

But when a reliable cash generator like this (free cash flow is up 128% in the last decade) with a massive cash hoard ($165 billion as of April) takes a 10% header in weeks, it\u2019s got<\/em> to be on your radar. Especially as Treasury yields ease off, throwing a big lift under the rate-sensitive tech sector\u2014and its undisputed leader.<\/p>\n

Brett Owens is chief investment strategist for <\/em>Contrarian Outlook<\/em>. For more great income ideas, get your free copy his latest special report: <\/em>Your Early Retirement Portfolio: Huge Dividends\u2014Every Month\u2014Forever.<\/p>\n

Disclosure: none<\/em><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The 10-year Treasury yield\u2019s latest journey to the stars is setting up a terrific opportunity for us to \u201clock in\u201d historically high dividend yields\u2014and upside, too. The time to make our move is now. Here\u2019s why: the surging yield on the \u201clong bond\u201d has hit stocks\u2014especially dividend stocks\u2014hard. But this surge is completely unsustainable. Look, over the last few weeks, I\u2019ve been saying the 10-year would bump its head on the \u201c4.3% ceiling\u201d and retreat. The fact that it\u2019s blown through that ceiling only means its coming fall will be that much harder\u2014and our favorite dividend stocks will rip that<\/p>\n","protected":false},"author":1,"featured_media":1305,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[40],"tags":[],"class_list":["post-1304","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investment"],"yoast_head":"\n2 \u2018Contrarians-Only\u2019 Dividends That Will Fly As Rates Fall | ConnectWithFund<\/title>\n<meta name=\"description\" content=\"The 10-year Treasury yield\u2019s latest journey to the stars is setting up a terrific opportunity for us to \u201clock in\u201d historically high dividend yields\u2014and\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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