Three High-Yield Stocks to Buy Before Interest Rates Fall

In his remarks on July 15, Fed Chair Jerome Powell made it crystal clear that he believes the days of elevated inflation—and therefore, the need to keep interest rates high—are almost over.

Calling the results of the last three reports on inflation "a pretty good place," Powell said that the recent figures add to his confidence that inflation is slowing sustainably. 

And traders know what that means… markets are pricing in an above 80% likelihood that the Federal Reserve cuts interest rates within a few weeks. 

Investors who have gotten used to interest rates being at 17-year highs will have to look elsewhere for income, as Treasury yields and other traditional income investments plummet. 

But there is one class of high-yielding investments that's positioned to not only survive but thrive amid interest rate cuts—even as it offers investors yields as high as 12%. 

Three Reasons Real Estate investment Trusts Rise Amid Falling Rates

Real estate investment trusts (REITs) are companies that own, operate, or finance income-generating real estate. 

By law, they enjoy special tax privileges, on the condition that they invest at least 75% of total assets in real estate, cash, or U.S. Treasuries. 

Most importantly, REITs must pay 90% of their taxable income back to shareholders in dividends every year, as a condition of their special tax privileges. 

This means that REITs often offer dividend yields of 10% or higher—at a time when the average blue-chip company on the S&P 500 pays just 1.39%. 

Real estate investment trusts can benefit from falling interest rates for three big reasons.

First, decreasing borrowing costs naturally help REITs, which usually rely on debt financing to buy and manage properties. 

Second, falling rates increase a REIT's attractiveness for investors, relative to bonds. As bond yields fall, more investors turn to REITs for high levels of income—which pushes REIT stocks higher.

Third, rising property values make REITs more valuable. Property prices typically rise during falling interest rates, as low interest rate fuel a rising property market. 

With that in mind, here are three REITs income-oriented investors will want to consider before the Fed makes lower rates official in September.

REIT #1: Omega Healthcare Investors (OHI)

Headquartered in Hunt Valley, Maryland, Omega Healthcare Investors owns and manages nursing and assisted living facilities—a sector that will only see more demand as over 11,000 Americans turn 65 each day. 

OHI offers a 7.5% dividend yield, over 4x that of the average S&P 500 company. Crucially, it maintained its payouts throughout the 2020 Covid-19 crash in markets and the 2022 recession. 

That's a testament to the soundness of OHI's fundamentals—as can also be seen by the company's 87.4% earnings growth last quarter. 

REIT #2: Realty Income Corporation (O)

Headquartered in San Diego, California, Realty Income is a member of the S&P 500's Dividend Aristocrat Index—a group of S&P 500 companies that have raised their dividends each year for 25 years or longer. 

In fact, Realty Income has raised its dividend—which it pays out on a monthly, not quarterly basis—124 times since the company went public in 1994.

Realty Income owns or manages 15,450 properties primarily owned under long-term net lease agreements with commercial clients. It grew revenues by 33.3% year-over-year last quarter.

REIT #3: Alexandria Real Estate (ARE)

Alexandria Real Estate has an asset base totaling 74.1 million square feet concentrated in San Francisco, Boston, Seattle, San Diego, and the Research Triangle. 

Its properties deal heavily in the startup and education space—making ARE a possible play on continued growth in Silicon Valley and other wealth clusters throughout America. 

The ongoing tech boom seems to be lifting ARE. The company grew earnings by a stellar 119% last quarter on a year-over-year basis. 

It pays a 4% yield—lower than other REITs on this list, but the company is growing its dividend quickly. 

Its current payout of $5.20/share is up 4.8% from last year, rising handily above the rate of inflation. It's also raised its dividend four other times over the last five years. 

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