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A core theme of the economy over the last couple of years is abnormally high inflation. While politicians are often criticized or cheered for the current state of the economy, the Federal Reserve is actually the institution responsible for setting monetary policy.

In an effort to combat inflation, the Federal Reserve raised interest rates 11 times throughout 2022 and 2023. In finance jargon, the “cost” of money is interest. So, essentially, borrowing money becomes more expensive and harder to do when interest rates are increased. The goal here is to tighten money supply — effectively slowing down economic activity. This should (in theory!) bring prices down, resulting in reduced inflation.

Right now, the inflation rate in the U.S. is around 2.9%. While this remains elevated compared to the Fed’s long-term target of 2%, it is a material improvement from the 9% inflation rate from about two years ago. With that in mind, the Fed may finally be ready to start tapering interest rates.

During the Fed’s Economic Symposium a couple of weeks ago, Chairman Jerome Powell strongly alluded that changes to policy are on the way. Candidly, there are only a finite number of things that could mean, and I think rate cuts are coming this month.

Let’s break down one ultra-high-yield dividend stock that I think is poised for newfound growth should rate cuts occur. Now could be a lucrative opportunity to scoop up shares.

How would rate cuts bring some newfound rhythm?

The stock I have on my radar is a real estate investment trust (REIT) called Rithm Capital (NYSE: RITM). The company is an asset manager that focuses on the real estate industry, offering services such as mortgage origination for homes, businesses, and consumers.

As I alluded to above, the cost of borrowing money has become more expensive over the last couple of years. In turn, some areas of economic activity, such as buying a home, doing a home improvement project, or starting a business, have been affected by higher interest rates. Rithm’s business is exposed to these dynamics, leaving its underlying financial trends pretty volatile in parallel with a high-interest-rate environment.

If the Fed does indeed begin to cut rates this month, though, Rithm looks well positioned for some newfound growth. Lowering the cost of capital could inspire greater mortgage refinancing or serve as a tailwind for people looking to buy property. Rithm stands to benefit from these situations, and I think lower rates will ultimately bring some much-needed stability back to the business. But don’t take it from me — Rithm’s CEO is optimistic about the possibility of upcoming rate cuts, too.

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During Rithm’s second-quarter earnings call, CEO Michael Nierenberg said: “Looking at the macro picture, we are extremely well-positioned for the future and the expectations, and with the expectations of the Fed lowering rates beginning in September, this bodes very well for our company. This will help lower our borrowing costs and hopefully lead to higher earnings.”

Is now a good time to buy Rithm Capital stock?

As of the time of this writing, Rithm’s share price of $11.50 is not too far off its 52-week high. The effect of the rising stock price can be easily seen in the chart below, reflecting Rithm’s price-to-book (P/B) ratio. Clearly, the company’s P/B of 0.92 is materially higher than the low points of two years ago. But the choppiness in more recent valuation trends over the last couple of months suggests some mixed investor sentiment.

I think there are a couple of related ideas in play here. For much of 2024, economists all over Wall Street were parroting one another calling for multiple rate cuts. Earlier this year, billionaire hedge fund manager Bill Ackman, among others, suggested the Fed would cut rates multiple times this year. Although that is yet to happen, I think the notion of looming rate cuts inspired some positivity among the investment community, and perhaps influenced some buying activity in companies such as Rithm.

However, the chart shows that Rithm’s P/B has fluctuated frequently throughout the summer. While these moves weren’t overly material, I see the more recent price action as indicative of one thing: Uncertainty. Since the Fed hasn’t tapered rates yet, I think some investors have chosen to sit on the sidelines until something happens (or doesn’t happen).

Given that inflation is consistently showing signs of cooling down, Chairman Powell’s recent remarks, and the outlook from Rithm’s own management, I think there’s a good chance a rate cut will finally occur in September (with more to follow). Should that happen, now could be a great time to pounce on Rithm stock and take advantage of its near-9% dividend yield.

Should you invest $1,000 in Rithm Capital right now?

Before you buy stock in Rithm Capital, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Rithm Capital wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $630,099!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 9, 2024

Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Prediction: The Federal Reserve Will Cut Rates In September, and This Ultra-High-Yield Dividend Stock Could Soar was originally published by The Motley Fool

Although artificial intelligence (AI) has been the talk of Wall Street for much of the last two years, the euphoria surrounding companies enacting stock splits has been an equally important catalyst for the stock market in 2024.

A stock split is a tool publicly traded companies have at their disposal that allows them to cosmetically alter their share price and outstanding share count by the same magnitude. It’s cosmetic in the sense that stock splits have no impact on a company’s market cap or its underlying operating performance.

There are two classes of stock splits, one of which investors gravitate to far more than the other. Reverse-stock splits have a goal of increasing a company’s share price, often to ensure continued listing on a major stock exchange. Comparatively, forward-stock splits reduce a company’s share price, usually with the purpose of making shares more nominally affordable for retail investors and/or employees.

Whereas reverse-stock splits are usually undertaken from a position of operating weakness, companies conducting forward splits are typically out-executing their competition and on the leading edge of the innovative curve within their respective industry. Long story short, investors often flock to companies completing forward-stock splits.

Since 2024 began, 13 exceptional businesses have announced or completed a stock split, 12 of which are of the forward-split variety. While none of these are probably better-known than AI leaders Nvidia (NASDAQ: NVDA) and Broadcom (NASDAQ: AVGO), the attention this week turns to Wall Street’s two newest members of the stock-split club.

Nvidia and Broadcom were Wall Street’s most-anticipated stock splits

The hype surrounding AI is so thick investors could arguably cut it with a knife. Since the start of 2023, shares of Nvidia have skyrocketed by 639%, as of the closing bell on Sept. 3, with Broadcom rising by a not-too-shabby 173%. Such monstrous gains coerced Nvidia to complete a 10-for-1 forward split in early June, while Broadcom conducted its first-ever split, also of the 10-for-1 variety, in mid-July.

The fuel behind Nvidia’s epic run that saw it, at least briefly, become the largest publicly traded company is its top-tier graphics processing units (GPUs). The company’s H100 GPU is the preferred choice in AI-accelerated data centers.

More importantly, demand for the H100 and successor Blackwell platform, which is set to make its debut in the early part of 2025, are backlogged. When demand for a product handily outstrips its supply, the price of that good tends to climb. The H100 GPU typically costs between 100% to 200% more than Advanced Micro Devices‘ MI300X AI-GPU. For Nvidia, this has led to a sizable uptick in its gross margin since 2023 began.

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As for Broadcom, it’s stepped up as the preferred provider of AI networking solutions. The Jericho3-AI fabric, which was introduced in the second quarter of 2023, is able to connect up to 32,000 GPUs in high-compute data centers. The goal for Broadcom’s solutions is to reduce tail latency and help businesses get as much computing capacity as possible out of their GPUs.

However, Broadcom has a considerably more diverse revenue stream than Nvidia. It’s one of the leading providers of wireless chips and accessories used in 5G-capable smartphones, and provides a wide assortment of optical components and networking solutions to industrial and automotive companies.

But Nvidia and Broadcom have had their moment in the spotlight as stock-split stocks. This week, two new companies are set to take center stage.

Sirius XM Holdings

One of Wall Street’s newest stock-split stocks, and the only one of the 13 set to complete a reverse split, is satellite-radio operator Sirius XM Holdings (NASDAQ: SIRI).

Sirius XM is the final inning of its merger with Liberty Media’s Sirius XM tracking stock, Liberty Sirius XM Group (NASDAQ: LSXMA)(NASDAQ: LSXMB)(NASDAQ: LSXMK), which is expected to stop trading after the closing bell on Sept. 9. This merger is being undertaken to create a unified class of Sirius XM common stock.

Upon completion of this merger — i.e., following the close of trading on Sept. 9 — Sirius XM will conduct a 1-for-10 reverse-stock split.

Although I did note that reverse splits are usually undertaken from a position of operating weakness, this isn’t the case with Sirius XM, which is in danger of delisting. The company has approximately 3.85 billion outstanding shares, which has held its share price firmly in the mid-single digits for over a decade. Some institutional investors may view stocks with a low share price as too risky. This coming split, which will lift its share price by a factor of 10, should put the company on the radar of bigger-money investors.

Despite no longer growing at a rapid pace, Sirius XM still enjoys a number of competitive advantages. For instance, being the only licensed satellite-radio operator affords a level of subscription pricing power that virtually ensures it stays ahead of the inflationary curve. With Spotify Technology recently increasing its subscription cost, Sirius XM looks like a good bet to follow suit and raise its prices in the months to come.

Sirius XM also generates its revenue in a markedly different fashion than traditional radio operators. Whereas most terrestrial and online radio providers heavily rely on advertising revenue to keep the lights on, Sirius XM brought in roughly 77% of its net sales through the first six months of 2024 from subscriptions.

While an ad-driven operating model works well during lengthy periods of economic expansion, it can lead to turmoil during inevitable downturns in the U.S. economy. Meanwhile, Sirius XM’s subscribers are far less likely to cancel their service than businesses are to reduce their marketing budget when economic uncertainty rears its head. In short, Sirius XM has a safer floor than its peers.

Cintas

The other stock-split stock that’ll be taking center stage this week is corporate uniform and business services leader Cintas (NASDAQ: CTAS).

On May 2, the company’s board approved a 4-for-1 stock split, which is set to take place following the close of trading on Sept. 11. This will mark the sixth time Cintas has split its stock since its August 1983 initial public offering (IPO). With the company’s shares rising by nearly 84,000% since its IPO, or 124,800%, including dividends, a stock split is very much needed.

Although supplying corporate uniforms and various business accessories, such as floor mats and safety kits, isn’t a groundbreaking operating model, Cintas is able to take advantage of the non-linear nature of the economic cycle.

Since World War II ended 79 years ago, only three of 12 U.S. recessions have made it to the 12-month mark, with none enduring longer than 18 months. On the other side of the coin, most economic expansions have stuck around for multiple years, including two periods of growth that topped the 10-year mark. Disproportionately long growth spurts favor companies like Cintas that are tied to the health of the U.S. economy.

Another reason for the nearly parabolic climb in Cintas’s stock is its customer diversity. Cintas claims to serve more than 1 million businesses. This means no single customer is vital to its success, or capable of capsizing the proverbial ship.

Inorganic growth has been another key catalyst for Cintas. Management has overseen a number of acquisitions since this century began, including Zee Medical in 2015 and G&K Services in 2017. In addition to being earnings-accretive, these acquisitions have helped expand Cintas’s product ecosystem, as well as promoted cross-selling opportunities.

This week, it’s all about Sirius XM and Cintas.

Should you invest $1,000 in Sirius XM right now?

Before you buy stock in Sirius XM, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Sirius XM wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $630,099!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 3, 2024

Sean Williams has positions in Sirius XM. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Spotify Technology. The Motley Fool recommends Broadcom and Cintas. The Motley Fool has a disclosure policy.

Move Over, Nvidia and Broadcom: Wall Street’s 2 Newest Stock-Split Stocks Are Taking Center Stage This Week was originally published by The Motley Fool

Shares of Chinese electric vehicle (EV) maker Nio (NYSE: NIO) have been flying recently. Nio’s American depositary shares were up by 11.1% as of 3:50 p.m. ET today. That brings its five-day surge to a whopping 38%.

That move was initiated by Nio’s promising second-quarter earnings report last week. And the positive momentum continued today after the company caught an upgrade from one Wall Street analyst and a very bullish label from another.

Nio’s “upside catalyst watch”

When Nio reported its second-quarter results at the end of last week, it showed strong improvement in its gross profit margin compared to the first quarter, and beat analyst expectations with its third-quarter delivery and revenue guidance.

After shipping a record 57,373 EVs in the quarterly period, the company said it expects to deliver between 61,000 and 63,000 EVs in the third quarter. That led J.P. Morgan analyst Nick Lai to upgrade Nio shares and significantly raise his firm’s price target.

Lai now thinks investors should buy Nio stock and sees the stock reaching $8 per share. That’s up from his previous target of $5.30 per share and would represent a gain of nearly 50% from recent levels. His reasoning is that operating cash flow will turn positive for the remainder of 2024, which should eliminate the need for Nio to raise fresh capital. Nio ended the second quarter with about $5.7 billion on its balance sheet.

At the same time, Citigroup analyst Jeff Chung opened a 30-day “upside catalyst watch” on the stock. That designation means he thinks Nio shares are on the verge of moving higher. He also cited the rising gross profit margin as a key reason, reports Barron’s.

Whether it was the encouraging quarterly report or the backing of Wall Street analysts, investors have been jumping into Nio shares. The stock’s move higher can continue if the company keeps showing real progress toward achieving profitability.

Should you invest $1,000 in Nio right now?

Before you buy stock in Nio, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nio wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $630,099!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

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See the 10 stocks »

*Stock Advisor returns as of September 9, 2024

Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Howard Smith has positions in Nio. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

Why Nio Stock Continued to Soar Today was originally published by The Motley Fool

Goldman Sachs isn’t scared off by the latest Nvidia (NVDA) sell-off.

Nvidia shed roughly $400 billion in market value last week after the stock fell nearly 10% on Tuesday. The tech stock was one of the biggest drivers of the S&P 500’s (^GSPC) worst start to September since 1953, according to Bespoke Investment Group, though it recovered some of its losses on Monday.

Despite the selling, Toshiya Hari, a lead analyst at Goldman Sachs, maintained a Buy rating on the chip giant. When asked if the Goldman team thought the sell-off in Nvidia stock was overdone, Hari said, “Yes, we do.”

“The recent performance hasn’t been great, but we do remain positive on the stock,” Hari told Yahoo Finance at the Goldman Sachs 2024 Communacopia and Technology Conference. “First of all, demand for accelerated computing continues to be really strong. We tend to spend quite a bit of time on the hyperscalers — the Amazons, the Googles, the Microsofts of the world — but you are seeing a broadening in the demand profile into enterprise, even at the sovereign states.”

Nvidia’s sell-off began when the company’s better-than-expected earnings print on Aug. 28 just wasn’t good enough for Wall Street. While Nvidia’s revenue beat Wall Street expectations by 4.1%, that was the smallest margin for the company since its fiscal fourth quarter of 2023.

The big debate around Nvidia is whether its earnings momentum is sustainable. Hari said that investors are questioning whether that will be the case not only for 2025 but for 2026 too.

Investor sentiment on artificial intelligence has “swung nearly 180 [degrees]” since early 2023, Goldman’s equity research team wrote in a recent note. Investors’ patience is wearing thin, and they want to be shown — not told about — AI-driven revenue streams and profit margin improvements.

Still, the Goldman team wrote, with a profound generational technology shift such as AI, “it would be futile to pass judgment based on near-term cost and return economics.”

The focus is on the long game: Goldman estimates that generative AI will begin materially contributing to sector growth by the second half of 2025.

“I think their competitive position continues to be really strong,” Hari said of Nvidia. “We do think within merchant silicon, Nvidia is the go-to, and even versus custom silicon, they’ve got the edge in terms of the pace of innovation.”

Nvidia CEO Jensen Huang is set to speak at the conference on Wednesday morning.

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There are a million and one ways to make a buck on Wall Street, but some methods are more reliable than others. If you’re an investor looking for a way to beef up your passive income stream or you simply want big gains, buying dividend-paying stocks and holding them is a relatively easy way to make it happen.

Dividend-payers have to manage their cash more carefully than non-dividend-payers, which leads to measurable benefits for investors. During the 50 years from 1973 through 2023, stocks in the benchmark S&P 500 index that paid dividends rose by 9.17% annually on average. Annual returns from non-dividend-payers in the same index are less than half at just 4.27% on average, according to Ned Davis Research and Hartford Funds.

At the moment, shares of W.P. Carey (NYSE: WPC), AT&T (NYSE: T), and Pfizer (NYSE: PFE) offer dividend yields of 5% or better. Here’s why investors can expect them to outperform in the decade ahead.

1. W.P. Carey

W.P. Carey is a large real estate investment trust (REIT) that owns 1,291 properties spread throughout the U.S. and Europe. This REIT takes a hands-off approach with net leases that transfer all the variable costs of building ownership, such as maintenance and taxes, to the tenant.

Shares of W.P. Carey are down from their all-time peak because the company had to sell a lot of underperforming office buildings and slash its dividend accordingly. At recent prices, it offers a 5.7% yield that could grow significantly in the years ahead.

Now that it’s out of the office building space, industrial properties, and warehouses are responsible for a combined 64% of annual rent expectations. The REIT’s tenant list is highly diversified with its four largest tenants responsible for less than 10% of its portfolio.

This year, W.P. Carey expects adjusted funds from operations (FFO) to land in a range between $4.63 and $4.73 per share. This is heaps more than it needs to meet a dividend obligation currently set at $3.48 per share. With a pile of capital from office building sales available to reinvest, investors can reasonably expect this REIT’s bottom line and its dividend payout to rise steadily in the decade ahead.

2. AT&T

AT&T is another dividend payer that recently cut its payout in response to the sale of a large chunk of its overall business. In 2022, the company spun off its unpredictable media assets, so these days, it’s purely a telecommunications business. At recent prices, the stock offers a 5.3% dividend yield.

AT&T’s telecom business is steadily growing along with America’s need for both broadband and mobile internet services. The recent addition of a fixed wireless option helped second-quarter broadband sales rise 7% year over year.

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AT&T hasn’t raised its dividend payout since spinning off its media assets. It’s still focused on reducing a debt load that was still $126.9 billion at the end of June.

AT&T could begin raising its dividend again soon. Over the past 12 months, the company generated a very healthy $20.9 billion in free cash flow and needed just $8.2 billion to meet its dividend commitment. That means there’s plenty of profits available to reduce debt and maintain or raise its dividend commitment.

3. Pfizer

Pfizer is still getting hit by rapidly shrinking demand for COVID-19 vaccines and treatments. Its stock price has been beaten down a long way from its previous peak, but the company has continued raising its dividend year after year. At recent prices, it offers a big 5.9% dividend yield.

Second-quarter sales rose just 3% year over year. If we ignore contributions from its COVID-19 products, though, sales surged 14% year over year.

Investments made with its COVID-related windfall give Pfizer a good chance to continue growing at a healthy pace. In 2023, the Food and Drug Administration approved nine new drugs, a new record.

Big Pharma companies are made of many parts that move in different directions. Some of Pfizer’s aging blockbusters are on the way down, but the company has over a dozen products that grew second-quarter sales by more than 10% year over year.

With an unprecedented slew of new drugs to market, and an experienced global salesforce ready to market them, investors can look forward to steadily rising dividend payments from this stock for at least a decade.

Should you invest $1,000 in W.P. Carey right now?

Before you buy stock in W.P. Carey, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and W.P. Carey wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $630,099!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 3, 2024

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.

3 No-Brainer Dividend Stocks With Yields Above 5% You Can Buy Now and Hold at Least a Decade was originally published by The Motley Fool