Investing

5 Dividend Aristocrats Can Explode Higher When Rates Are Lowered in 2024

Lee Jackson

Published: November 19, 2023 10:05 am

Over the last year and a half, interest rates have jumped from historical lows of literally 0% to the highest level since 2007 at 5.5%. 30 FHA Mortgages have jumped from 2.65% in January of 2021 to the current 7.76% rate. During that period, any stock that was the least sensitive to interest rates got hammered, and the damage trail covered several sectors.

While it was a tough stretch for shareholders, 2024 could be the year many interest rate-sensitive stocks bounce back with a vengeance. While the possibility of one final interest rate hike still looms, many across Wall Street feel that the Federal Reserve will start to lower rates by the summer of next year.

The 67 companies that cut the 2023 S&P 500 Dividend Aristocrats list have increased dividends (not just remained the same) for 25 years straight. But the requirements go even further, with the following attributes also mandatory for membership on the dividend aristocrats list:

• Companies must be worth at least $3 billion each quarterly rebalancing.
• The average daily volume of at least $5 million in transactions for every trailing three-month period at every quarterly
• Be a member of the S&P 500

We screened the Dividend Aristocrats list for companies that will benefit the most when rates start to come down in 2024. All are ‘Strong Buy’ rated across Wall Street.

Atmos Energy

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This utility stock struggled some this year but is perfect for conservative accounts looking for income and pays a 2.89% dividend. Atmos Energy Corporation (NYSE: ATO) and its subsidiaries engage in the regulated natural gas distribution and pipeline and storage businesses in the United States. It operates in two segments: Distribution and Pipeline and Storage.

The Distribution segment is involved in the eight states’ regulated natural gas distribution and related sales operations. This segment distributes natural gas to approximately 3.3 million residential, commercial, public authority, and industrial customers. As of September 30, 2022, it owned 73,243 miles of underground distribution and transmission mains.

The Pipeline and Storage segment engages in the pipeline and storage operations. This segment transports natural gas for third parties, manages five underground storage reservoirs in Texas, and provides ancillary services customary to the pipeline industry, including parking arrangements, lending, and inventory sales. As of September 30, 2022, it owned 5,652 miles of gas transmission lines.

Consolidated Edison

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This old-school utility stock offers income investors the stability and track record many seek now and pays a 3.63% dividend. Consolidated Edison Inc. (NYSE: ED) provides electric services to approximately 3.5 million customers in New York City and Westchester County; gas to about 1.1 million customers in Manhattan, the Bronx, and parts of Queens and Westchester County; and steam to approximately 1,700 customers in portions of Manhattan.

Consolidated Edison owns 62 area distribution substations and various distribution facilities

• 39 transmission substations and 62 area stations
• Electric generation facilities with an aggregate capacity of 724 megawatts that run on gas and fuel oil
• 4,348 miles of mains and 369,791 service lines for natural gas distribution
• One steam-electric generating station and five steam-only generating stations

The company operates 572 circuit miles of transmission lines

• 14 transmission substations
• 86,794 in-service line transformers
• 3,994 pole miles of overhead distribution lines
• 1,889 miles of underground distribution lines
• 1,867 miles of mains and 105,482 service lines for natural gas distribution

In addition, it is involved in the sale and related hedging of electricity to retail customers and providing energy-related products and services to wholesale and retail customers.

Essex Property Trust

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This stock has been hammered, but it is an outstanding way for investors looking to add an inflation-busting real estate position, paying a 4.39% dividend to growth and income portfolios. Essex Property Trust, Inc. (NYSE: ESS), an S&P 500 company, is a fully integrated real estate investment trust (REIT) that acquires, develops, redevelops, and manages multifamily residential properties in selected West Coast markets.

Essex has ownership interests in 246 apartment communities comprising approximately 60,000 apartment homes, with six additional properties in various stages of active development.

International Business Machines

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This blue-chip giant still offers investors an excellent entry point and pays a hefty 4.46% dividend. International Business Machines (NYSE: IBM) provides integrated solutions and services worldwide.

The company operates through four business segments: Software, Consulting, Infrastructure, and Financing.

• The Software segment offers hybrid cloud platforms and software solutions, such as Red Hat, an enterprise open-source solution; software for business automation, AIOps and management, integration, and application servers; data and artificial intelligence solutions; and security software and services for threat, data, and identity. This segment also provides transaction processing software that supports clients’ mission-critical and on-premise workloads in the banking, airline, and retail industries.
• The consulting segment offers business transformation services, including strategy, business process design and operations, data and analytics, system integration, technology consulting, and application and cloud platform services.
• The Infrastructure segment provides on-premises and cloud-based server and storage solutions for its clients’ mission-critical and regulated workloads, support services and solutions for hybrid cloud infrastructure, and remanufacturing and remarketing services for used equipment.
• The financing segment offers lease, installment payment, loan financing, and short-term working capital financing services.

Realty Income

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This is another ideal stock for growth and income investors looking for a safer contrarian idea for 2024 that pays a hefty 6.14% dividend. Realty Income Corporation (NYSE: O) is an S&P 500 company that provides stockholders with dependable monthly income.

The company is structured as a REIT, and its monthly dividends are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with commercial tenants.

Realty Income has declared 640 consecutive common stock monthly dividends throughout its 54-year operating history and increased the dividend 122 times since Realty Income’s public listing in 1994. It is a top real estate member of the S&P 500 Dividend Aristocrats index.

2 REITs, two old-school utility stocks, and a technology giant should fare well when the Federal Reserve starts to lower rates in 2024. The futures market is currently factoring in a 60% chance for a rate cut in June 2024.