7 Dividend Stocks to Buy as the Fed Mulls Rate Cuts

Stocks to buy

For quite some time, the concept of dividend stocks to buy encountered a huge obstacle: the consistently robust and outperforming monthly jobs report. However, the latest employment picture for April finally showed a slowdown, which may give the Federal Reserve the cover that it needs.

After seeing inflation skyrocket following the Covid-19 disaster, the central bank laid out a plan to restore stability. That involved raising the benchmark interest rate to tame soaring consumer prices. However, with the employment sector continuing to add more nonfarm payrolls to the economy, policymakers couldn’t go dovish. Now that labor has finally cooled somewhat, it’s possible to see such cuts down the line.

If so, that would be a big lift for passive income providers. Basically, they no longer have to compete with high-yielding government bonds. That decline in competition should then smile on these intriguing dividend stocks to buy.

Target (TGT)

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One of the top big-box retailers in this country, Target (NYSE:TGT) should be on your radar for dividend stocks to buy if the Fed reverses course with its current monetary policy. Should rates come down, that would reduce the burden of borrowing money. In turn, the action could lift sentiment for discretionary purchases. Theoretically, this dynamic should support TGT stock.

As for the passive income, the company offers a forward dividend yield of 2.73%. That’s noticeably higher than the consumer staple sector’s average yield of 1.89%. As well, the payout ratio comes in at 41.69%, implying confidence in the sustainability of the yield. Further, Target offers 53 years of consecutive annual payout increases, making it a dividend king.

For the current fiscal year, analysts are looking for earnings per share of $9.43 on sales of $107.14 billion. That’s a bit of a mixed bag compared to last year’s results of $8.94 EPS on sales of $107.41 billion. However, the blue-sky revenue target calls for $109.46 billion, which isn’t unreasonable – especially if rates come down.

Air Products and Chemicals (APD)

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Based in Allentown, Pennsylvania, Air Products and Chemicals (NYSE:APD) falls under the specialty chemicals category. Per its public profile, Air Products provides atmospheric gases, process and specialty gases and other related equipment and services. Should rates drop down, the reduced burden of borrowing could spur economic activity. Thus, APD could benefit from a demand increase.

While waiting for the narrative to pan out, investors can enjoy a forward yield of 2.83%. While that’s only slightly higher than the sector average yield of 2.82%, here’s the thing: Air Products commands 49 years of consecutive payout increases. One more and it’s a dividend king. That’s a status the company absolutely will not give up on.

For fiscal 2024, covering experts anticipate EPS of 12.26 on sales of $12.32 billion. Again, it’s a mixed bag, with last year’s results coming in at earnings of $11.51 on revenue of $12.6 billion. However, fiscal 2025’s top line calls for a consensus view of $13.24 billion, thus rewarding the patient. It could be one of the dividend stocks to buy.

PepsiCo (PEP)

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A soft drink giant, PepsiCo (NASDAQ:PEP) also manufactures and distributes convenient foods worldwide. Fundamentally, PepsiCo could benefit from the trade-down effect. Given the challenging economic environment, consumers may look for alternative sources of caffeine, as an example. They may eschew going out to pricey coffee shops for Pepsi-labeled products. That could be a sizable boost for PEP stock.

Further, PEP ranks among the top dividend stocks to buy. Currently, the underlying company offers a forward yield of 3%. That’s well above the consumer staple sector’s average yield of 1.89%. To be fair, the payout ratio – while not terrible – is a bit elevated at 61.31%. Still, the company benefits from 53 years of consecutive dividend increases. It will hold onto that status.

For fiscal 2024, analysts project that EPS will land at $8.17 on revenue of $94.48 billion. That would be a sizable improvement over last year’s print of earnings of $7.07 per share on sales of $84.9 billion. The company also beat the revenue target for the first quarter, suggesting robust momentum. Thus, it’s one of the dividend stocks to buy.

Exxon Mobil (XOM)

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An integrated energy giant, Exxon Mobil (NYSE:XOM) represents one of the top-tier hydrocarbon players. Fundamentally, the world runs on oil. In that regard, XOM benefits from longstanding relevance. Further, on a cynical basis, the geopolitical flashpoints that have sprouted across the world threaten to disrupt energy supply chains. This too could easily send XOM soaring.

For now, investors can sleep easier at night knowing that Exxon ranks among the top dividend stocks to buy. Presently, it offers a forward yield of 3.22%. While that’s lower than the energy sector’s average yield of 4.24%, here’s the deal: it commands 41 years of consecutive payout increases. Management will surely want to keep this trend going. As well, the payout ratio is only 38.82%.

Interestingly, analysts project EPS to land at $9.16 with a top line of $348.76 billion. That’s disappointing compared to last year’s results of $9.52 EPS on sales of $344.58 billion. However, because of the geopolitics, the blue-sky targets could be on the table; that is, EPS of $11.08 and revenue of $435.21 billion.

BHP Group (BHP)

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Falling under the basic materials category, BHP Group (NYSE:BHP) focuses on industrial metals and mining. Operating as a resource firm, it features multiple business units that cover commodities such as copper, iron ore and coal. In addition, it mines for uranium and gold, both of which offer relevance during this economic cycle. Should rates decline, the possible spurring of business activity could benefit BHP.

Even better, the company ranks among the dividend stocks to buy for those seeking strong passive income. Currently, the company offers a forward yield of 5.04%. That’s well above the materials sector’s average yield of 2.82%. Further, the payout ratio comes in at 56.26%, which is reasonable. However, the payout frequency is semiannual, which is something to keep in mind.

Presently, Wall Street analysts rate shares as a consensus moderate buy. However, the average price target comes in at only $53.92, implying some downside risk. However, Jefferies views BHP as a $68 stock, which seems reasonable based on the broader context.

Verizon (VZ)

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Operating in the vast communication services field, Verizon (NYSE:VZ) ranks among the biggest dividend stocks to buy. Specializing in the telecom category, Verizon engages in the provision of communications, technology, information and entertainment products and services to individual customers, businesses and government entities worldwide. Since it’s such a pertinent industry, Verizon offers some level of insulation, irrespective of monetary policy fluctuations.

However, if rates do end up decreasing eventually, that would be good news for VZ stock. That’s because its already robust yield would look even more attractive. Currently, the company offers a forward dividend yield of 6.56%, well above the sector average of 2.62%. Further, the payout ratio is quite reasonable at 56.46%. Just as well, the company features 19 years of consecutive payout increases.

To be fair, fiscal 2024 is projected to be a somewhat challenging year, with EPS of $4.26 and a top line of $124.73 billion down from last year’s results of earnings of $4.71 per share on sales of $133.97 billion. However, sentiment could start improving in fiscal 2025, with EPS potentially rising to $4.38 on revenue of $127.22 billion.

As a dividend play, it might be worth picking up during the lull.

British American Tobacco (BTI)

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Headquartered in London, U.K., British American Tobacco (NYSE:BTI) technically falls under the broad consumer defensive sector. However, it does arouse controversy for its namesake tobacco business. With global smoking prevalence coming down, BTI might seem an irrelevant idea. However, while the practice may be in decline, it’s not nonexistent. Further, people have gravitated toward alternative methodologies.

While traditional tobacco products may be fading in key markets, the vaping or e-cigarette segment is gaining prominence. Here, British American may have an advantage thanks to its economies of scale. It could simply outmuscle smaller competitors. Also, if any regulatory obstacles arise, BTI would have the financial wherewithal to adjust. That can’t be said confidently about small businesses.

As for the passive income, that’s where the narrative comes alive. Currently, the company offers a forward yield of 9.56%. That’s well above the norm for the consumer staples industry. To be fair, the company only has one year of raising the payout so that’s something to keep in mind. Still, the payout ratio, while elevated, is reasonable for such a big yield at 61.84%.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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