After an exponential rise throughout 2017, the U.S. stock markets have been witnessing turmoil since February 2018. Factors like inflationary concerns, impending interest rate hike, global trade war fear, geopolitical conflicts in the Middle East, political turmoil in Europe, oil price fluctuations and many more, have heightened market fluctuations.
Investment in high-dividend paying stocks, over a reasonable time period, is likely to bring good returns, especially when the market is plagued with severe volatility. At this stage, it would be a prudent investment decision to bank on stocks which promise strong dividend yield and carry a favorable Zacks Rank to capitalize on future growth.
Trade War Fear Looms Large
Lingering trade conflict between the United States and China along with Canada, Mexico and the European Union have resulted in systematic volatility. According to Christine Lagarde, managing director of the IMF, the ongoing tensions over international trade is the biggest risk to the world economic growth.
Trade conflict is likely to escalate as President Trump has intentions of imposing tariffs of as high as $450 billion on Chinese imports of as high as $450 billion. China will certainly retaliate with reciprocal tariffs of same amount on U.S. exports.
As a result of these trade conflicts, U.S. exports have become vulnerable to retaliatory tariffs. Canada and European Union have already imposed retaliatory tariffs and Mexico is likely to follow suite. Notably, these countries are very close political allies of the United States.
Inflationary Concern Remains
The Fed has increased its 2018 PCE (personal consumption expenditure) inflation projection from 1.9% in March to 2.1%. However, the core PCE inflation (excluding food and energy) --the key inflation measurement tool and the central bank’s preferred inflation barometer – was up slightly to 2% from 1.9% in March.
On Jun 1, the Department of Labor reported that the U.S. economy added 223,000 jobs in May, exceeding the consensus estimate of 190,000. The unemployment rate declined from 3.9% in April to 3.8% in May, the index’s lowest in 18 years.
The decline in the unemployment rate indicates the extent to which the labor market has tightened. This may result in wages and subsequently boost inflation, compelling the Fed to aggressively hike rates to stabilize the economy.
Our Top Picks
Despite strong economic fundamentals, several concerns plague the investors. Trade conflicts and inflationary expectations are immediate concerns. At this juncture, it will be lucrative to invest in high-yielding stocks in order to ensure a steady income stream. We narrowed down our search to five such stocks with Zacks Rank #2 (Buy) and high-dividend yield. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows price performance of our five picks in the last three months.
Orchid Island Capital Inc. (ORC - Free Report) is a specialty finance company that invests in residential mortgage-backed securities the principal and interest payments which are guaranteed by either the U.S. Government or a government-sponsored agency. It has a dividend yield of 14.1%.
Orchid Island Capital has expected earnings growth of 77.4% for current year. The Zacks Consensus Estimate for the current year has improved by 2.8% over the last 60 days.
AllianceBernstein Holding L.P. (AB - Free Report) provides diversified investment management services, primarily to pension funds, endowments, foreign financial institutions as well as individual investors. It has a dividend yield of 10%.
AllianceBernstein Holding has expected earnings growth of 10.4% for current year. The Zacks Consensus Estimate for the current year has improved by 1.2% over the last 60 days.
WhiteHorse Finance Inc. (WHF - Free Report) is a business development company focused on originating loans to privately held small-cap companies across a broad range of industries. It has a dividend yield of 9.6%.
WhiteHorse Finance has expected earnings growth of 11.9% for current year. The Zacks Consensus Estimate for the current year has improved by 7.1% over the last 60 days.
Sutherland Asset Management Corp. (SLD - Free Report) is a real estate finance company which acquires, originates, manages, services and finances primarily small balance commercial loans. It has a dividend yield of 9.1%.
Sutherland Asset Management has expected earnings growth of 14.1% for current year. The Zacks Consensus Estimate for the current year has improved by 4.5% over the last 60 days.
Tallgrass Energy GP L.P. is engaged in the transportation, storage and processing of natural gas, the transportation of crude oil and the provision of water business services primarily to the oil & gas exploration and production industry. It has a dividend yield of 8.9%.
Tallgrass Energy has expected earnings growth of 50% for current year. The Zacks Consensus Estimate for the current year has improved by 5.6% over the last 60 days.
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