Soaring inflation has been the biggest concern for the American economy that’s been affecting markets for months. The Fed has so far struggled to get a firm grip on rising inflation despite multiple rate hikes. On Sep 21, the Fed increased interest rates for the fourth time this year in its bid to control surging inflation.
However, the crisis is far from over as the Fed has indicated more interest rate hikes in the coming months, or at least till sky-high commodity prices don’t cool off to the desired levels.
Another Interest Rate Hike
The Fed, on Sep 21, hiked interest rates by 75 basis points, its fourth hike this year. This takes the total hike to 300 basis points so far this year to a target range of 3% to 3.25%. However, this is not the end as the struggle to tame rising inflation continues.
The Fed has also hinted at raising interest rates by another 125 basis points by the year-end. That would take the benchmark interest rate to a midpoint of 4.4% by the end of this year. Moreover, the central bank has indicated that it doesn’t ‘t plan to cut interest rates till 2024.
The move doesn’t come as a surprise given that Fed Chair Jerome Powell had earlier shared similar hawkish views toward hiking rates.
Inflationary pressures have been taking a toll on stocks since the beginning of the year. Markets managed to end in the green only in March and July in the first eight months of the year. September is historically known as one of the worst-performing months for markets. This time it has been worse, with the month starting with severe volatility after the two-month-long summer rally evaporated in August.
Investors were initially expecting a not-so-steep rate hike, which fueled the summer rally but the positive sentiment was dampened by the hotter-than-expected inflation reading in August. Powell added to the gloom by commenting that the central bank will continue to hike interest aggressively so long it gets full control over soaring inflation.
The unexpected jump in the consumer price index in August gave Fed the perfect cover to go for another steep rate hike.
In fact, Powell’s comments following Wednesday’s rate hike indicate further hikes in the coming months. The Fed’s aggressive monetary policy has instilled fears of an economic slowdown in the minds of investors.
Higher interest rates mean a higher cost of borrowing, which increases the chances of an economic slowdown. Both are negative signs for the markets, which have already experienced volatility this year. Stock prices are still being affected by worries of an economic slowdown.
Stocks to Watch
Given this situation, investors should exercise caution and continue holding dividend-paying stocks to protect their portfolios. We think it’s a good idea to consider stocks that have recently hiked their dividend payouts. Four such companies are: Microsoft Corporation (MSFT – Free Report) , Texas Instruments Incorporated (TXN – Free Report) , Keurig Dr Pepper Inc. (KDP – Free Report).
Microsoft Corporation is one of the largest broad-based technology providers in the world. MSFT dominates the PC software market, with more than 80% of the market share for operating systems.
On Sep 20, 2022, Microsoft Corporation announced that its shareholders would receive a dividend of $0.68 per share on Dec 8, 2022. MSFT has a dividend yield of 1.02%. Over the past 5 years, Microsoft Corporation has increased its dividend six times, and its payout ratio is presently 27% of earnings. Check MSFT’s dividend history here.
Texas Instruments Incorporated is an original equipment manufacturer of analog, mixed-signal and digital signal processing integrated circuits. TXN has manufacturing and design facilities, including wafer fabrication and assembly/test operations in North America, Asia and Europe.
On Sep 15, 2022, Texas Instruments Incorporated declared that its shareholders would receive a dividend of $1.24 per share on Nov 15, 2022. TXN has a dividend yield of 2.77%. Over the past 5 years, Texas Instruments Incorporated has increased its dividend six times, and its payout ratio is presently 50% of earnings. Check TXN’s dividend history here.
Keurig Dr Pepper Inc. is a beverage and coffee company in the United States and Canada. KDP sells its products through at-home and away-from-home channels to retailers, including supermarkets, department stores, mass merchandisers, club stores and convenience stores; and restaurants, hospitality accounts, office coffee distributors and partner brand owners, as well as to consumers through its websites.
On Sep 14, 2022, Keurig Dr Pepper announced that its shareholders would receive a dividend of $0.20 per share on Oct 14, 2022. KDP has a dividend yield of 2%. Over the past 5 years, Keurig Dr Pepperhas increased its dividend three times, and its payout ratio is presently 47% of earnings. Check KDP’s dividend history here.