What should we make of the markets today? That’s the question on the minds of every market and economic expert out there – and it’s a challenging one.
Inflation has dropped to 3% annually, and the labor market is hot. Stocks are up, indicating that investors have priced in the risk of potential recession. However, this leads to a problem highlighted by Piper Sandler’s chief strategist, Michael Kantrowitz. He points out that estimates for forward earnings are not keeping up with the positive sentiment. Kantrowitz adds that as inflation falls, pricing power weakens, and so does forward revenue growth. As a result, earnings expectations are now souring.
“We still believe the second half of 2023 will show the lingering effects of monetary policy, particularly in earnings and labor, leading to negative returns in H2,” Kantrowitz says, and goes to add that even if a full-blown recession does not hit, “a weak growth outlook and already-high price multiples could mean poor stock market performance…”
In such a scenario, it becomes crucial to adopt a defensive position. One effective way to navigate through uncertain times is by embracing the tried-and-true strategy of investing in high-yielding dividend stocks. By doing so, investors can secure a consistent and reliable income stream, regardless of whether the overall stock market experiences gains or losses.
Against this backdrop, Piper Sandler analysts have identified two potential opportunities, one of which boasts a sky-high 13% yield. Let’s take a closer look.
Annaly Capital Management (NLY)
We’ll start with Annaly Capital Management, a mortgage real estate investment trust, or mREIT. Real estate investment trusts are typically dividend champions, required by tax regulations to directly return profits to shareholders – and Annaly can fall back on a profitable business to support those returns through its dividend payments.
Annaly owns a portfolio of mortgages and mortgage-backed securities, with $86 billion in total assets and $12 billion in permanent capital. The company’s portfolio is composed…