Happy New Year!
2023 was a year full of unexpected surprises, both good and bad.
Demand for artificial intelligence skyrocketed – and so did shares of companies leading the charge.
More companies began moving manufacturing back to the U.S.
A number of major banks failed and had to be rescued.
The government nearly hit the debt ceiling, and nearly shut down – twice.
Bankruptcies increased to levels seen during the pandemic.
Large numbers of workers went on strike.
The world endured one of the hottest years in history (temperature-wise).
And last but not least, a new war erupted in the Middle East.
As we look forward to 2024, I want to share three predictions for this year and how you can prepare your portfolio for the year ahead.
My Predictions for 2024
1. The Fed will begin cutting interest rates.
In early 2022, interest rates were near zero. Now – just two years later – they’re at 5.5%. That’s one of the sharpest increases in rates we’ve seen in recent history. And it was needed to slow down runaway inflation.
But I think the Fed is done. They’ve kept interest rates steady at 5.5% since August. And the economy is starting to slow down even though inflation is still above the Fed’s target of 2%. If interest rates stay too high for too long, the economy will tip closer to recession.
So I think the Fed will announce its first interest rate cut later this year.
That’s good news for dividend-paying stocks. As interest rates drop, investors will look for chances to collect higher yields. That means more money will flow to the companies that pay reliable dividends.
2. Mergers and acquisitions will increase.
2023 was one of the worst years for mergers and acquisitions in over a decade. Sellers still wanted premium valuations. Buyers were scared that rising rates would affect their potential returns. And banks were being careful about making loans.
But now that interest rates have stabilized, companies are starting to make deals again.
One of my favorite companies – Realty Income (O) – made a deal to buy Spirit Realty Capital late last year. And I think more mergers are on the way.
Small and mid-sized companies will be prime targets for bigger companies looking to transform their business or reinforce their moat.
And investment banks – like JP Morgan, Goldman Sachs, and Morgan Stanley – could see increasing profits as they arrange more deals.
3. Reliable companies will keep growing their dividends.
The Dividend Aristocrats are a group of S&P 500 companies that have increased their dividends for 25 or more years. That’s not an easy feat to achieve.
And a Dividend Aristocrat in 2024 has been through at least three recessions – the Tech Crash, the Financial Crisis, and the COVID pandemic.
This year, I think these two companies will get added to that list of elite companies: Eversource Energy (ES) and FactSet Research Systems (FDS).
Eversource is a utility company that provides water, gas, and electricity to customers in Connecticut, Massachusetts, and New Hampshire.
And FactSet Research Systems is a financial data company that delivers research information to portfolio managers and investors.
Both are entering their 25th year and I believe they will make it all the way to Dividend Aristocrat status.
One Way to Profit From My New Years Predictions
According to S&P Global, over the long-term Dividend Aristocrats produce higher returns and have lower volatility compared to the S&P 500.
Our research at Wide Moat confirms that companies with longer histories of dividend growth are less likely to cut their dividends. That’s why many of the income investments we recommend are reliable dividend growers.
And one way to easily add Dividend Aristocrats to your portfolio is through the ProShares S&P 500 Dividend Aristocrats ETF (NOBL).
This exchange-traded fund holds shares of all companies that are Dividend Aristocrats. Over the past decade, it has been 10% less volatile than the S&P 500. So you can sleep well knowing that you own high-quality companies.
Make this year a profitable one for your portfolio.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily