Interest rates have already started to decline ahead of the first rate cut by the Federal Reserve later this month. That’s starting to cause a market shift, allowing interest-rate sensitive companies to move higher.
As rates trend lower, companies will benefit. They’ll be able to borrow and lower costs. And for some companies, it can also mean that their dividend yields will look more attractive relative to bonds.
That’s the case with real estate investment trusts, or REITs. They’re required to pay out 90% of their earnings as dividends. That tends to result in high yields.
With rates still at the start of a decline, REITs likely have more upside, even as they’ve already started to become a market winner.
Investors have plenty of options in the REIT space. American Homes 4 Rent (AMH), a company that owns and rents out single-family homes rather than apartments, is likely to benefit from this trend.
Shares are up about 10% over the past year, lagging the overall market.
Action to take: AMH shares are likely to take off as rates decline. AMH pays a 2.6% dividend at current prices. That’s a little low for a REIT, but they have a history of raising their payout over time.
For traders, the March 2025 $45 calls, last trading for about $2.30, could see mid-to-high double-digit gains in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.