On Sep 14, Wall Street ended sharply higher, starting the new week on a positive note. This is in contrast to the previous week, which was the worst one in several months. Stock markets are witnessing severe volatility this month after a spectacular rally for five consecutive months. Month to date, all the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — are in negative territory.
Market fluctuations may persist for a few more days. However, the worst of Wall Street is long over and the overall market movement should remain positive going forward. At this stage, it will be prudent to invest in regular dividend-paying growth stocks with a favorable Zacks Rank. The growth potential of these stocks will capture the market's upside while a high dividend yield will be useful if volatility persists for a longer period.
Fed's New Inflation Control Policy
On Aug 27, Fed Chairman Jerome Powell announced that the newly adopted “average inflation targeting” policy will allow inflation and employment to run higher together for some time in order to support the pandemic-ravaged economy.
The Fed's target of 2% inflation will remain unchanged. However, under the new policy, the inflation rate will remain higher than 2% along with increased employment for some time. This inherently means that the benchmark interest rate, which is currently low in the 0-0.25% range, will remain at that level for a longer period than expected.
A low interest rate will reduce the cost of capital for businesses and consumers have a lesser propensity to save due to a low deposit rate. Therefore, higher spending by businesses and consumers is likely to boost the overall economy and raise stock prices.
U.S. IPO Market Flourishes
The U.S. initial public offering (IPO) market will witnesses the busiest week this week since May 2019. This week, 12 IPOs are expected to raise around $6.8 billion from the market. These companies are looking to take advantage of the astonishing recovery of the U.S. capital market defying coronavirus-induced devastations.
A massive surge in IPO is indicating ample investor appetite for new stocks and growing confidence for risky assets like equities. In this regard, an ultra-dovish monetary stance taken by the Fed has helped Wall Street to reach a record high level. Heightened IPO activities mean bullish investor sentiment for the U.S. stock markets going forward.
Wall Street Has Room to Grow Further
The market is not overvalued. Historically, the average returns of the S&P 500 and the Dow in the last 23 U.S. Presidential election years were 11.3% and 6%, respectively.
Moreover, in its latest projection on Sep 10, the Atlanta Fed estimated 30.8% growth for third-quarter U.S. GDP after it plunged 31.7% in the second quarter. Furthermore, projections for U.S. corporate earnings for third-quarter and full-year 2020 are rising since early July, indicating growing corporate profits.
Our Top Picks
Growth investors are primarily focused on stocks with aggressive earnings or revenue growth, which should propel their stock price higher in the future. We have narrowed down our search to five high dividend-paying stocks each carrying a Zacks Rank #1 (Strong Buy) and Growth Score A.
The chart below shows the price performance of our five picks in the past three months.
Target Corp. (TGT) operates as a general merchandise retailer in the United States. It offers beauty and household essentials, food assortments, including perishables, dry grocery, dairy, and frozen items; and apparel, accessories, home décor products, electronics, toys, seasonal offerings, and other merchandise.
The company’s expected earnings growth rate for the current year (ending January 2021) is 18.9%. The Zacks Consensus Estimate for the current year has improved 41.7% over the last 30 days. The stock has a dividend yield of 1.84%.
Medifast Inc. (MED) manufactures and distributes weight loss, weight management, healthy living products, and other consumable health and nutritional products in the United States and the Asia-Pacific.
The company has an expected earnings growth rate of 37.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 18.4% over the past 60 days. The stock has a dividend yield of 2.54%.
The Scotts Miracle-Gro Co Inc. (SMG) manufactures, markets and sells consumer lawn and garden products in the United States and internationally. The company operates through three segments: U.S. Consumer, Hawthorne and Other.
The company has an expected earnings growth rate of 52.6% for the current year (ending September 2020). The Zacks Consensus Estimate for current-year earnings has improved by 17% over the past 60 days. The stock has a dividend yield of 1.55%.
Griffon Corp. (GFF) is a diversified management and holding company conducting business through wholly-owned subsidiaries. It oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures.
The company has expected earnings growth of 40.7% for the current year (ending September 2020). The Zacks Consensus Estimate for the current year has improved 76.7% over the last 60 days. The stock has a dividend yield of 1.55%.
Stewart Information Services Corp. (STC) provides title insurance and real estate transaction services. It operates in two segments, Title Insurance and Related Services, and Ancillary Services and Corporate.
The company has expected earnings growth of 48% for the current year. The Zacks Consensus Estimate for the current year has improved 54.2% over the last 60 days. The stock has a dividend yield of 2.71%.
Bonus Pick: Buffett dumps Apple, buys this!
Through Berkshire Hathaway, Warren Buffett recently dumped $800 million of Apple stock, and bought this instead!