Contrary to popular belief, the Federal Reserve isn't done raising interest rates.
Yes, the Fed raised rates last week - but here's the interesting thing.
PCE inflation numbers came out last week at 3% for June. That's fine, but that's only the headline number. The Fed focuses more on CPI numbers, which exclude volatile prices such as food and energy.
For June, CPI numbers grew at 4.1%. That's a problem because it means the Fed is likely to raise rates again, later this year. In fact, that's exactly what they've already been saying over the last several weeks.
The takeaway here is, we're getting close to peak interest rates.
How do we know we're getting close to peak interest rates?
For the last several weeks, with the Fed Funds range between 5.00% - 5.25%, the actual effective Fed Funds rate, which refers to actual transactions in overnight markets between banks, has been 5.08%. After the hikes last Wednesday, the effective Fed Funds rate jumped to 5.33%.
Rates are high enough now that we could see them coming back down later this year, or early next year.
Case in point, Bankrate came out with data last week that said the average 1-year CD, at well-known banks, was at 5.3%, yet the rate on a 5-year CD is only 4.5%. That tells you that the banks are anticipating rates will come down.
If you're a fixed income investor, it is a good time to start looking at laddering, whereby you purchase bonds or CDs that mature at staggered future dates, rather than all at the same time - but you could also look at individual stocks with high yields and low payout ratios.
With that said, I'm watching Woodside Energy Group Ltd (WDS), the Perth, Australia-based oil & gas exploration company that produces liquefied natural gas, pipeline gas, condensate, natural gas liquids, and crude oil in Oceania, Africa, the Americas, Asia, and the Caribbean.
The company finished Q4/2022 with record quarterly production of 51.6MMboe (562Mboe/day) which was up a whopping 128.3% over the same period a year ago.
And revenue for Q4/2022 was $5.16 billion which represented a 77.6% increase over Q4/2021.
More recently, on July 19, 2023, the company reported quarterly production of 44.5 MMboe (489 Mboe/day), down 5% from Q1 2023. The reduction was due to a planned turnaround and maintenance activities, so I'm not concerned.
Looking ahead, the company expects to finish 2023 with full-year production between 180-190 MMboe.
The company sports a healthy 38.64% profit margin, has a solid balance sheet with $6.88 billion in cash versus $6.77 billion in debt, and over the trailing twelve months it generated operating cash flow and levered free cash flow of $8.81 billion and $6.69 billion.
Those are very solid numbers, but most importantly for us, the forward dividend rate is $2.53 per share, which at the current price, amounts to a 9.92% yield, and the payout ratio is just 50.2%.
As I write this, shares of WDS are trading at $25.78. I'm watching the stock to see if the stock can breakout above resistance at $26.25, on above average volume. If that happens, and the stock can turn prior resistance into support, I like picking up shares for the juicy yield.
Any time an industry experiences shakeups due to geopolitical conflict, it always creates opportunities to profit. Part of Woodside's success is attributed to their ability to keep profits up and answer the supply demands caused in part by the ongoing aftershocks of the Russia-Ukraine war.
Right now, tensions are brewing between two geopolitical rivals, the United States and China, over the future of another industry - semiconductor and computer chip manufacturing. The next generation of chips is going to power the AI-driven technologies of the future, and both countries are in a fierce competition to de-couple their past dependencies on one another and make sure they come out ahead.
And when that happens, it's going to create a high-demand market that will send a handful of stocks skyrocketing. I have a full briefing and investing plan here - now's the time to check it out.
The post Buy This Stock to Protect Investment Yields When Interest Rates Fall appeared first on Total Wealth.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.