Dividend stocks are expected to pop as the Fed lowers rates. How to shop for the right ones

With markets widely expecting the Federal Reserve to cut interest rates at its September meeting, dividend-paying stocks are about to get their moment in the sun. Fed funds futures trading data suggests a rate cut from the current range of 5.25% to 5.

5% is a certainty next month, according to the CME FedWatch Tool . When that happens, investors hoarding cash in money market funds – which today are paying seven-day annualized yields exceeding 5% – are likely to take a hit to their portfolio income. "As you look forward from this point onward, this 5% [in money market funds] may not materialize as the Fed starts cutting, so where can you find income as the risk-free rate starts to come down?," said Stephen Tuckwood, director of investments at Modern Wealth Management in Laguna Beach, California.

"It's a good idea to look at dividend-paying stocks." Those dividend payers haven't seen the same runaway appreciation that the broader market has enjoyed in 2024 – but they could be primed for a bounce: The ProShares S & P 500 Dividend Aristocrats ETF (NOBL) has a total return of 10.1% this year, compared to the S & P 500 's advance of almost 19%, including reinvested dividends.

NOBL .SPX YTD line NOBL ETF vs the S & P 500 in 2024 Investors should be discerning as they shop for these dividend-paying names and avoid the siren call of names that have high yields that are too good to last. Not all dividend payers are alike High dividend yields may be eye-catching at first, but they .