They pushed it out as far as they could, but the data are way too strong and the time has come for the Federal Reserve to start raising rates again. Unless there is some huge black swan event, the Fed will raise rates this week one-quarter of a percentage point, or 25 basis points. In addition, the Fed is expected to raise rates twice next year and again in 2018. If all four increase are 25 basis points, the federal funds rate should be still under 2% by 2019.
Typically, certain sectors either benefit from rising rates or are not affected much. Usually consumer discretionary, financial and technology are sectors largely immune or are the beneficiaries of rate hikes. We screened the Merrill Lynch research database and found four companies rated Buy that pay dividends that should either welcome the rate increase or not be hurt by it.
This top retailer has had a nice run and is looking for solid holiday sales. Kohl’s Corp. (NYSE: KSS) operates department stores in the United States that offer private label, exclusive and national brand apparel, footwear, accessories, beauty and home products to children, men and women customers. The company also sells its products online at Kohls.com and through mobile devices.
The company reported very solid third-quarter results, and Merrill Lynch noted in a research report at the time:
Third quarter earnings-per-share of $0.80 was ahead our $0.66 estimate due to better sales and SG&A control. Comps were down 1.7% vs. our -3% view. Lifting our fiscal 2016 earnings-per-share estimate by $0.10 to $4.00, and raising price target to $60 to reflect higher estimates & multiple expansion. Our fiscal 2017 EPS estimate is 9% above street. We think 11x P/E reflects significant doubt in Kohl’s ability to improve results.
Kohl’s shareholders receive a 3.48% dividend. The Wall Street consensus price target for the stock is $52.68. Shares closed above that on Friday at $57.50.
This leader in semiconductors is working hard to scale away from dependence on personal computers. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide. The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.
The company also provides communication and connectivity offerings, such as baseband processors, radio frequency transceivers and power management integrated circuits, and tablet, phone and Internet of Things solutions, which include multimode 4G LTE modems, Bluetooth technology and GPS receivers, software solutions and interoperability tests, as well as home gateway and set-top box components.
Intel reported inline third quarter, but data center sales came in way below expectations for the tech giant. A stunning 82.4% of Intel sales come from overseas, the lion’s share of it in Asia, where the chips that it produces are used in personal computers, tablets and other personal electronic devices. Fears of trade issues with China have taken a toll on the stock, and the timing looks good.
Intel investors receive a 2.91% dividend. The $42 Merrill Lynch price target compares with the consensus target of $39.82. The shares closed Friday at $35.76.