Capitalizing on Rate Cuts: Top Stocks to Watch for Growth and Income

Explore the investment opportunities arising from the Federal Reserve's recent interest rate cut, highlighting Dominion Energy, D.R. Horton, and Realty Income as promising stocks poised to benefit from this economic shift. Discover why these companies stand out and consider other top stock recommendations for potential high returns.
SummaryThe Federal Reserve’s recent decision to cut interest rates by 0.5% for the first time in over four years has sparked a significant stock market surge. This move could further invigorate the bull market that began in late 2022, offering lucrative opportunities for investors. The article highlights three stocks worth considering: Dominion Energy, which could benefit from reduced borrowing costs and offers a high dividend yield; D.R. Horton, poised for growth due to lower mortgage rates and a housing shortage; and Realty Income, a REIT gaining momentum with attractive dividends and expansion plans in the AI and European markets. However, investors are advised to consider other top stock recommendations from The Motley Fool’s Stock Advisor, which has historically outperformed the S&P 500.

A Shift in Federal Reserve Policy: Impact and Opportunities

After more than four years without a reduction, the Federal Reserve finally cut interest rates by a substantial 0.5% this past Wednesday. Initially, investors reacted with little excitement, but as the implications of this significant rate cut were processed, the stock market surged on Thursday. Furthermore, the Federal Open Market Committee suggested the possibility of another 0.5% reduction before the year’s end, amplifying investor optimism.

The Fed’s decision could invigorate the bull market that has been ongoing since late 2022, presenting a lucrative opportunity for investors. Here are three promising stocks to consider adding to your portfolio.

Dominion Energy: A Utility Stock with Potential

Typically, utility stocks are known for their steady and unexciting performance, appealing mainly to income-focused investors. However, 2024 has been a standout year for many utilities, including Dominion Energy (0.12%). The stock has climbed over 20% since the beginning of the year.

The Fed’s rate cuts are likely to further enhance Dominion Energy’s stock performance. Lower interest rates mean reduced borrowing costs, a boon for Dominion, which faces around $8.3 billion in debt maturing over the next three years and maintains a $6 billion credit facility.

As bond yields decline with falling rates, investors often turn towards higher income alternatives. Dominion Energy, with a forward dividend yield of approximately 4.7%, becomes an attractive option. Interestingly, it also offers indirect exposure to the booming artificial intelligence sector, as it serves Northern Virginia, the global leader in data centers.

D.R. Horton: A Homebuilder Poised for Growth

Despite not needing lower interest rates to thrive, D.R. Horton (1.48%) has already seen its shares soar nearly 30% this year, following an impressive 70% rise in 2023. The expected rate cuts, however, will certainly bolster D.R. Horton’s prospects. As mortgage rates generally decrease alongside interest rates, home affordability improves, which is excellent news for D.R. Horton shareholders.

As the largest U.S. homebuilder by volume, D.R. Horton operates in 121 markets across 33 states and completed sales on 94,255 homes in the year ending June 30, 2024. The company stands to gain significantly from reduced mortgage rates resulting from the Fed’s actions.

Additionally, there is a pressing need for new homes in the U.S., with estimates from Fannie Mae and Zillow suggesting a demand of around 4.4 to 4.5 million homes. The solution to this housing shortage lies in new construction, positioning D.R. Horton for long-term success.

Realty Income: A REIT with Renewed Momentum

While Realty Income (-2.40%) hasn’t been a standout performer in 2024, its stock is in positive territory for the year, albeit modestly. Over the past 12 weeks, however, the stock has gained momentum, largely due to expectations of interest rate cuts.

Real estate investment trusts (REITs) share similarities with utility companies, particularly in their reliance on debt for expansion and their attractive dividend yields. Consequently, both REIT and utility stocks are highly sensitive to interest rate changes.

With lower rates, Realty Income becomes increasingly appealing to income investors moving away from bonds. The REIT offers a forward dividend yield of 5.2% and pays dividends monthly, having increased its dividend for 27 consecutive years.

Like Dominion Energy, Realty Income is set to benefit from the AI demand surge, viewing the data center market as a promising growth area. Additionally, the company is eyeing expansion in Europe, where it sees a total addressable market of $8.5 trillion.

Is Dominion Energy the Right Investment for You?

Before rushing to invest in Dominion Energy, consider the insights from The Motley Fool Stock Advisor analyst team. They have pinpointed what they believe are the top 10 stocks to buy now, and Dominion Energy isn’t on the list. These selected stocks have the potential for substantial returns in the coming years.

For instance, if you had invested $1,000 in Nvidia when it was recommended by Stock Advisor on April 15, 2005, you’d now have $694,743. The Stock Advisor service provides a strategic blueprint for investment success, including portfolio-building guidance, regular analyst updates, and two new stock recommendations each month. Since 2002, the service has more than quadrupled the return of the S&P 500.

Explore the top 10 stocks ›

Stock Advisor returns as of September 17, 2024

Margaret "Maggie" Turner
Margaret "Maggie" Turner

Margaret "Maggie" Turner: The Television Chronicle

Margaret Turner, affectionately known as Maggie, is a veteran journalist whose illustrious career in TV entertainment news spans over three decades. At 50, her keen insights and nuanced understanding of the television industry have made her a respected figure among colleagues and readers alike. With her signature brown hair and an ever-present twinkle in her eye, Maggie brings both warmth and wisdom to her work.

Maggie's story begins in the bustling city of Chicago, Illinois, where she spent her formative years captivated by the power of storytelling. From a young age, she was drawn to the screen, fascinated not only by the stories themselves but by the cultural conversations they sparked. This passion led her to Northwestern University, where she pursued a degree in Journalism, setting the stage for a lifelong dedication to the craft.

Over the years, Maggie has built a robust portfolio, contributing to leading entertainment magazines and websites. Her writing is celebrated for its depth and clarity, often exploring the intersections of television, society, and technology. Maggie's ability to anticipate trends and provide context has earned her a loyal readership that values her thoughtful analysis.

A strong advocate for diversity in media, Maggie frequently uses her platform to highlight underrepresented voices and stories in the television industry. Her commitment to inclusivity has not only influenced her work but also inspired a new generation of journalists to prioritize diverse narratives.

Beyond her professional achievements, Maggie is a passionate traveler, finding inspiration in the cultures and stories she encounters around the world. Her travel experiences often find their way into her writing, adding a rich, global perspective to her commentary.

At home, Maggie enjoys a serene life with her husband, David, a renowned architect, and their two golden retrievers, Lucy and Charlie. An avid reader, she finds solace in her expansive home library, where she can often be found curled up with a good book or drafting her next piece.

Maggie Turner is more than a journalist; she is a storyteller at heart, committed to capturing the ever-evolving world of television with grace and insight. Her career continues to inspire those around her, proving that the art of storytelling remains as vital and transformative as ever.

Articles: 25

Related Posts