Ford Motor Company (NYSE: F) can use any help it can get now that peak auto has prevailed over growth in the industry. For starters, Ford’s 5.95% dividend looks more and more attractive if interest rates are falling rather than rising. Car affordability has contracted in recent years as more fuel efficiency and safety requirements have driven up the base cost of all cars.
Lower interest rates will translate to lower borrowing costs for new and used car buyers alike. That will, in turn, make some of that burden feel less worrisome to new car buyers. The same can be said of all car makers of course, but Ford has seen its shares slide further in the last five years versus General Motors.
International Business Machines Corporation (NYSE: IBM) may have been struggling to find that turnaround into strategic imperatives and away from old technology consultants showing up in short sleeve dress shirts under IT-services contracts. The $34 billion all-cash acquisition of Red Hat was the largest IBM purchase ever. It has meant higher debt for IBM and it now has $43.3 billion in long-term debt that is the highest we have found in recent years.
IBM has paused buying back its billions of dollars worth of shares to make room for the purchase, and IBM has been seeing and is expected to continue to see no added revenue growth from its pre-Red Hat business. Its 4.7% dividend yield is among the highest in the technology giants, and that dividend will look more attractive as a place to hide if interest rates are falling rather than rising.
KB Home (NYSE: KBH) has seen a solid recovery in its shares from the late-2018 sell-off, but this builder has a large footprint with 38 markets in 8 states. KB Home targets single-family homes and townhomes and condominiums with a focus on first-time buyers, first move-up and active adult homebuyers.
Lower interest rates will be a huge help here due to the company being reliant on the mortgage market as lower rates will make it more attractive and easier for first-time buyers to finance a home purchase — particularly now that many builders and mortgage companies are less strict about the 20% down to buy a home. The same benefits can also be said to be a win for Lennar, PulteGroup, Toll Brothers and further on down the line.
Newmont Goldcorp Corporation (NYSE: NEM) is the largest gold miner and producer now with close to a $30 billion market cap and almost 95 years worth of history as a public company. Gold may not be your first cyclical play that comes to mind, but if savers are going to earn lower and lower interest from their banks and Treasury yields, then they are apt to go right back to loving gold all over again (if they can just keep cryptocurrency out of their thoughts) as the ultimate safety asset and hard asset. That means more gold demand, which means more mining and hopefully more income.
Lower interest rates also make Newmont Goldcorp’s 1.55% dividend look a bit better than when short-term Treasury rates are still well above 2%. Rival gold giant Barrick Gold now has a $25 billion market cap and would benefit much the same as Newmont Goldcorp, but it has a lower dividend yield at 1.1%.
NextEra Energy, Inc. (NYSE: NEE) is the largest U.S. utility of them all by market cap ($98 billion and growing). While this is far from a cyclical stock, defensive investors have understood for years that utility stocks were the replacement for investors who would have otherwise just bought a Certificate of Deposit (CD) from a bank in years past.
Utilities also win with lower interest rates because they have to borrow money for the long-term as well, and of its $71.1 billion in total debt, there is a tally of almost $30 billion in long-term debt and more than $23 billion in “other liabilities” which are under the longer-term debt classification.