As the Federal Reserve begins to ease interest rates, bonds become less appealing, making dividend-paying stocks a more attractive investment option. However, as Ned Davis Research points out, not all dividend stocks are created equal.
Ed Clissold, Ned Davis Research’s chief U.S. strategist, highlights that in a slowing economy, where growth remains positive but moderates, investors prioritize growth-oriented companies. Companies that can maintain or increase their dividend payouts demonstrate strong financial health and signal confidence in their cash flow and balance sheet.
In this context, three REITs – Host Hotels & Resorts (HST), Equinix (EQIX), and Prologis (PLD) – emerge as promising candidates for investors seeking steady income and potential capital gains.
Host Hotels & Resorts (HST)
, a company specializing in luxury and upscale hotels, offers a dividend yield of approximately 5%. The stock is currently down year-to-date, but this dip could be a buying opportunity as travel demand is expected to stabilize. Analysts hold a ‘Buy’ rating on HST with a consensus price target of $20.95 per share.Equinix (EQIX)
, a diversified data center landlord, is riding the wave of artificial intelligence (AI) demand. This has resulted in a strong performance for the company, reflected in an 8.61% year-to-date increase in its stock price. With a dividend yield of 2.08%, analysts rate EQIX as a ‘Buy’ with a price target of $844.15 per share.Prologis (PLD)
, an industrial REIT, faced challenges earlier this year due to a cut in guidance. However, the company has since reversed course, raising its full-year forecast in July. With a 3.2% dividend yield, PLD is currently rated a ‘Buy’ by analysts with a price target of $140.60 per share. Prologis represents a recovery play for investors looking for solid dividends.In conclusion, as the Fed gradually moderates interest rates, dividend-paying stocks with strong growth potential, such as the REITs mentioned above, could offer investors a path to steady income and potential capital gains. It’s crucial to stay informed about the Fed’s actions and remember that growth often outweighs yield in slower economic cycles.
