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Top Stocks to Buy for Dividends and Economic Resilience
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Today’s episode of Full Court Finance at Zacks explores where the stock market and the economy stand as Q2 earnings season winds down and Wall Street wrestles with what’s next for inflation and interest rates.
Amid the continued unknowns and following the huge comeback off the mid-June lows, investors might want to consider buying top-ranked stocks that pay solid dividends and boast resilient earnings outlooks despite economic downturn fears.
The Nasdaq fell 2% through mid-afternoon trading Friday and 10-year U.S. Treasury yields popped to nearly 3% as Wall Street realizes it might have started declaring peak inflation too soon. The S&P 500 and the Dow also slipped to end the week.
The selling comes as investors lock in some profits following an impressive two-month surge that saw the Nasdaq climb over 20% off its lows and the S&P 500 approach those same new bull market levels. Along with profit taking, some on Wall Street are reevaluating their expectations that Jay Powell and the Fed will be able to ease up on the tightening front.
The 10-year yield is still well below the new decade-long highs of 3.5% it hit in the middle of June. The higher yields were based on Wall Street bets that the Fed would have to really ramp up its rate hike efforts to tame inflation. Those fears have eased, but investors have pushed yields back to around 3% from 2.57% on August 1.
July’s CPI, though flat month from June, still showcased 40-year high inflation. St. Louis Fed President James Bullard indicated Thursday that he’s leaning toward another 0.75% rate hike in September. “We should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation,” Bullard told the Wall Street Journal.
Higher rates will once again put pressure on resurgent growth stocks. The earnings outlook for the third quarter is also starting to fall and reflect higher costs and slowing consumer spending. This doesn’t mean investors should stay on the sidelines when staying in cash comes with an 8% fee. Now might be a great time to add more dividend-paying stocks that have also managed to lift their earnings outlooks during an economic slowdown.
The first stock up is self-storage standout Extra Space Storage (EXR - Free Report) which lands a Zacks Rank #1 (Strong Buy) right now. The company has grown its revenue every year since Extra Space went public back in 2004, including 16% growth in 2021.
Zacks estimates call for Extra Space to post 20% higher revenue in FY22 and 8% stronger sales in 2023 to lift its adjusted earnings by 22% and 7.4%, respectively. EXR’s dividend yields 2.8% at the moment, and people are just going to keep buying more stuff that they need to store somewhere.
Next up is oil and gas giant BP (BP - Free Report) which operates across the entire hydrocarbon landscape. BP posted another blockbuster quarter to start August and its outlook remains strong in the face of lower oil prices.
BP’s 4.5% dividend yield tops its highly-ranked industry’s average and it’s trading near 20-year lows of 4.5X forward 12-month earnings. And some investors might appreciate the fact that BP trades for around $32 per share.
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Top Stocks to Buy for Dividends and Economic Resilience
Today’s episode of Full Court Finance at Zacks explores where the stock market and the economy stand as Q2 earnings season winds down and Wall Street wrestles with what’s next for inflation and interest rates.
Amid the continued unknowns and following the huge comeback off the mid-June lows, investors might want to consider buying top-ranked stocks that pay solid dividends and boast resilient earnings outlooks despite economic downturn fears.
The Nasdaq fell 2% through mid-afternoon trading Friday and 10-year U.S. Treasury yields popped to nearly 3% as Wall Street realizes it might have started declaring peak inflation too soon. The S&P 500 and the Dow also slipped to end the week.
The selling comes as investors lock in some profits following an impressive two-month surge that saw the Nasdaq climb over 20% off its lows and the S&P 500 approach those same new bull market levels. Along with profit taking, some on Wall Street are reevaluating their expectations that Jay Powell and the Fed will be able to ease up on the tightening front.
The 10-year yield is still well below the new decade-long highs of 3.5% it hit in the middle of June. The higher yields were based on Wall Street bets that the Fed would have to really ramp up its rate hike efforts to tame inflation. Those fears have eased, but investors have pushed yields back to around 3% from 2.57% on August 1.
July’s CPI, though flat month from June, still showcased 40-year high inflation. St. Louis Fed President James Bullard indicated Thursday that he’s leaning toward another 0.75% rate hike in September. “We should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation,” Bullard told the Wall Street Journal.
Higher rates will once again put pressure on resurgent growth stocks. The earnings outlook for the third quarter is also starting to fall and reflect higher costs and slowing consumer spending. This doesn’t mean investors should stay on the sidelines when staying in cash comes with an 8% fee. Now might be a great time to add more dividend-paying stocks that have also managed to lift their earnings outlooks during an economic slowdown.
The first stock up is self-storage standout Extra Space Storage (EXR - Free Report) which lands a Zacks Rank #1 (Strong Buy) right now. The company has grown its revenue every year since Extra Space went public back in 2004, including 16% growth in 2021.
Zacks estimates call for Extra Space to post 20% higher revenue in FY22 and 8% stronger sales in 2023 to lift its adjusted earnings by 22% and 7.4%, respectively. EXR’s dividend yields 2.8% at the moment, and people are just going to keep buying more stuff that they need to store somewhere.
Next up is oil and gas giant BP (BP - Free Report) which operates across the entire hydrocarbon landscape. BP posted another blockbuster quarter to start August and its outlook remains strong in the face of lower oil prices.
BP’s 4.5% dividend yield tops its highly-ranked industry’s average and it’s trading near 20-year lows of 4.5X forward 12-month earnings. And some investors might appreciate the fact that BP trades for around $32 per share.