3 Stocks to Buy if the Fed Keeps Rates High for the Rest of 2024

“Higher for longer” may prove true as sticky inflation indicates the higher-rate environment might be here to stay. As interest rates stay steady, risk-averse investors gravitate towards short-term Treasuries for safety. However, a handful of stocks for high-interest rates are stepping into the limelight for those seeking a blend of excitement and potential upside. Dividend-paying and high-yield stocks present an attractive mix of predictable income and the thrill of market dynamics without compromising the chance for capital appreciation. This has led to this list of stocks for high interest rates.

With the Federal Funds rate currently at 5.33%, comfortably within the Fed’s 5.25 – 5.50% target, persistent inflation and ongoing economic worries suggest that rates may continue to rise or stay elevated, even if the increase slows down. This environment poses challenges for stocks, but that challenge seemingly hasn’t materialized as markets reach record highs – or is the other shoe about to drop?

But when looking at stocks with high interest rates, simply opting for income stocks isn’t a foolproof strategy. Investors need to diligently assess the fundamental strength of these stocks to ensure they’re selecting the best options suited for an environment marked by “higher for longer.”

Healthpeak Properties (PEAK)

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Healthpeak Properties (NYSE:PEAK) is positioned as a REIT that can thrive in any interest rate environment, even if we see high interest rates remain. For those seeking REITs adaptable to higher interest rates that capture long-term healthcare trends, Healthpeak presents a perfect pick.

In response to the challenges posed by the pandemic to senior living facility operations, PEAK took decisive action in 2020 and 2021, divesting most of its senior housing assets for approximately $4 billion. This strategic pivot saw the company reinvesting those proceeds into life sciences and medical office real estate, areas where it now boasts high-quality assets in premier markets, backed by top-tier tenants. This transition has fortified Healthpeak’s competitive advantage.

The healthcare sector is on the cusp of regulatory changes, particularly with anticipated adjustments to the Affordable Care Act, which are expected to favor high-quality care in cost-effective settings. Healthpeak, with its specialized facilities, is well-placed to capture increased interest from leading healthcare systems seeking optimal care environments.

With a current yield of 6.44%, Healthpeak’s attractive dividend is likely to remain robust as the demand for premium healthcare real estate continues to grow, underscoring the REIT’s strong investment appeal in the healthcare real estate market and amid a high-interest rate ecosystem.

Medtronic (MDT)

An image of two medical professionals performing a procedure on a patient

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Speaking of healthcare, Medtronic (NYSE:MDT) is a unique choice among high-interest rate stocks that blend medical device sale stability with substantial shareholder value initiatives.

Despite some post-pandemic hurdles as surgery rates recovered, Medtronic’s current share price presents a valuable opportunity for income-seeking investors, especially when considering the company’s long-standing commitment to its dividend program. Boasting nearly five decades of consistent dividend growth, Medtronic has reinforced this commitment as its CFO’s promise to return at least half of its free cash flow to shareholders throughout 2023 proved valid. This makes it one of those stocks for high interest rates.

As a leading innovator in the medical device sector, Medtronic leverages its culture of innovation to enter into collaborative, risk-based agreements with hospital networks. These partnerships are designed to improve patient outcomes and reduce healthcare costs, positioning Medtronic as a desirable partner in an era of rising healthcare expenses. This forward-thinking approach and ongoing technological innovations, such as its Nvidia (NASDAQ:NVDA) partnership, position Medtronic for potential growth and reinforce its appeal as an income-generating, high-interest rate suitable stock.

Realty Income (O)

A photo of a paper with a chart and the word

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Realty Income (NYSE:O) brings the best of both high-interest rate stocks together: REIT stability and ongoing income generation. At first glance, the company’s heavy reliance on retail-based tenants seems to be a vulnerability consideration digital shopping’s dominance.

However, a closer look reveals that 80% of Realty Income’s tenants belong to sectors known for their recession resistance. Most of these tenants are in the grocery sector, with others in convenience stores, dollar stores, and drug stores. This combination positions Realty Income in a robust retail segment despite broader consumer behavior shifts.

The structural advantage of Realty Income’s business model further bolsters its stability. Its triple-net lease arrangement places the responsibility for operational risks, costs, and property maintenance squarely on the tenants. This strategic setup insulates the company from the escalating costs of materials and labor that often accompany rising interest rates. Additionally, with lease terms that frequently span 15 years or more, including renewal options, Realty Income secures a steady stream of rental income. The average lease term to renewal for its current agreements is nearly a decade, providing substantial security and financial predictability in the face of fluctuating interest rates. All in all, it’s one of those stocks for high interest rates.

And, of course, income investors love Realty Income based on its consistent dividends (paid monthly) and longstanding history of increasing yield as a member of the Dividend Aristocrats. With a current yield of 5.84%, the company not only promises stability and resilience in higher-rate scenarios but also delivers tangible, ongoing value to its shareholders.

On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Jeremy Flint, an MBA graduate and skilled finance writer, excels in content strategy for wealth managers and investment funds. Passionate about simplifying complex market concepts, he focuses on fixed-income investing, alternative investments, economic analysis, and the oil, gas, and utilities sectors. Jeremy’s work can also be found at www.jeremyflint.work.

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