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5 Rock-Solid Dividend Stocks to Buy on New Fed Outlook

PKG XRX M LB

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An ounce of prevention is worth a pound of cure, and the Federal Reserve chairwoman, Janet Yellen has been rightly following the saying, as she and her policy-making committee voted to keep the benchmark interest rate unchanged at least for the time being.

However, the policy makers hinted that the tightening of monetary policy is still in the cards and signaled a likely rate hike before the end of the year. This points to a steady and meticulous approach, after factoring in all the economic indicators.

So, the federal funds rate is left untouched at 0.25% to 0.50% for now, providing the stock market with the much-needed impetus. The major indices ended trading in the green yesterday. The Dow Jones Industrial Average climbed 163.74 points or 0.90% to 18,293.70, while Nasdaq Composite rose 53.83 points or 1.03% to 5,295.18. The S&P 500 advanced 23.36 points or 1.09% to 2,163.12.

The Fed still remains cautiously optimistic about the U.S. economy and as the situation improves worldwide, the U.S. will be ready to lead the squad. The economy is not in bad shape as some of the risk-averse investors perceive. The employment picture is good enough and economic activity is gradually picking steam. However, the Fed pointed out that business investment remains sluggish and inflation level is still far below the desired level of 2%.

What Influenced the Fed’s Decision?

The tussle among the Fed members ended yesterday, after they unanimously agreed not to go for a rate hike. Industry experts believe if all goes well with the economy and in line with the Fed's objectives, the rate hike might occur in December. They deny the chances of a hike in November due to the Presidential election.

Definitely, the Fed will decide its course of action only after taking the global as well as domestic economic climate into account. Let’s see what factors played a role in shaping the Fed’s final decision.

The U.S. stock market displayed a sluggish performance at the start of the year owing to fears of overseas turmoil and plunging oil prices. But since then the market has recouped much of the losses. The economy navigated brazenly through the rough tide caused by the sluggishness witnessed in emerging markets such as China and Brazil, and fears of challenging economic/political conditions in Europe post Brexit. Further, the recent rebound in oil prices, higher consumer confidence, lower unemployment rate and a gradual improvement in the housing market signaled that the economy is gaining momentum.

However, the sentiment boosted by the aforementioned factors was toned down when soft retail sales date surfaced. U.S. retail sales in August declined 0.3%, marking the first drop since March. The dismal sales report came on the heels of soft job addition and contraction in the manufacturing and service sectors witnessed last month.

Cumulatively, these influenced the Fed’s decision to hold off on increasing interest rates. The Fed now anticipates the U.S. economy to expand at a pace of 1.8% this year, marginally lower than 2% projected earlier, and by 2% in both 2017 and 2018.

Where to Bet Your Bucks?

Well, following the outcome of the Fed’s meeting, the clouds of ambiguity have drifted away and the economic scenario is much apparent now. However, the question that still lingers is where to bet your bucks. On that note, while building a portfolio, one should consider stocks with a high dividend yield. Investors prefer an income generating stock, and therefore a dividend paying stock is always a preferable option.

John Davison Rockefeller once said, “Do you know the only thing that gives me pleasure? It's to see my dividends coming in.” People looking for regular income from stocks are most likely to be inclined toward those companies that have a track of consistent and incremental dividend payments. They are safer bets, particularly in a low-rate environment, as they provide a cushion during economic uncertainties.

5 Rock-Solid Stocks with Great Dividend Yields

We have picked five stocks that hold promise. Not only do they carry a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy) but also have a dividend yield of 3% or greater, and a VGM Score of “A” or “B.”

Packaging Corporation of America (PKG - Free Report) , a manufacturer and seller of containerboard and corrugated packaging products, is a solid bet. The stock flaunts a Zacks Rank #1 and has a long-term earnings growth rate of 11.5%. The company has a dividend yield of 3.1% with a VGM score of “B.”

Investors can also count on Outerwall Inc. , which provides automated retail solutions. The company has a dividend yield of 4.6% with a VGM score of “A.” The stock has a long-term earnings growth rate of 10% with a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

We also suggest investing in Xerox Corporation (XRX - Free Report) , which carries a Zacks Rank #2 and a long-term earnings growth rate of 10%. This provider of business process and document management solutions worldwide has a dividend yield of 3.1% with a VGM score of “A.”

Another stock that investors may look forward to is L Brands, Inc. (LB - Free Report) , holding a Zacks Rank #2 with a long-term earnings growth rate of 11.3%. This specialty retailer of women’s intimate and other apparel, beauty and personal care products has a dividend yield of 3.3% with a VGM score of “B.”

Last but not the least is Macy's, Inc. (M - Free Report) , an omnichannel retail company operating stores, websites and mobile applications. The company carries a Zacks Rank #2 and a long-term earnings growth rate of 8.5%. It has a dividend yield of 4.2% with a VGM score of “A.”

Final Verdict

A dividend is a distribution of part of the company's earnings, given to its stockholders either on a quarterly basis or semi-annually or annually. The willingness and ability on the part of the company to pay dividends regularly and increase the same from time to time sends a loud message about its soundness, prospects and performance as well as its underlying fundamentals. These together form the base of our investment strategy. Definitely, do not forget to use the Zacks Stock Screener to find other stocks with a winning combination.

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