Fed Putting Brakes On Rate Hikes Could Be Godsend For These Dividend-Paying Stocks — What You Need To Know

Although the Federal Reserve may not be done with its aggressive monetary policy yet, a pause in rate hikes is expected to favor beaten-down dividend-paying consumer staples stocks.

These stocks, which are known for their high dividend yields and steady business, ran out of favor this year and are trailing behind riskier technology and discretionary stocks, said a Bloomberg report.

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Arun Sundaram, vice president of equity research at CFRA said a potential decline in the dollar is still poised to support staples companies in the second half of 2023. "If the dollar holds where it is or continues to depreciate, the companies that should see the largest benefit are going to be companies like Mondelez International Inc MDLZ, Colgate-Palmolive Company CL, Coca-Cola Co KO, Procter & Gamble Co PG and Kimberly Clark Corp KMB," Sundaram told Bloomberg.

Despite optimism regarding a rate pause, the consumer staples group still does not seem to be out of the woods. For instance, Campbell Soup Company CPB shares declined after the company kept its annual forecasts unchanged, the report said. Although Americans were still willing to shell out more for diapers, soda and other everyday necessities at the start of the year, Campbell Soup indicated shoppers are becoming less willing to put up with price rises on beverages and snacks, the report added.

Expert Take: Quincy Krosby, chief global strategist at LPL Financial told Bloomberg that if the dollar's strength has peaked out, staples companies in the S&P 500 that derive part of their sales from overseas may benefit.

"Remember when the dollar was at its full strength, all we would hear during the earnings season was how it was hindering their ability to do well," said Krosby. "Now, we're on the road towards the other extreme with the dollar easing."

The dollar will decline if the central bank decides to end its tightening cycle. Traders are factoring-in a status quo policy in June with a 74.8% probability the Fed will not hike rates this time, according to the CME FedWatch Tool.

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