Amazon's big Bitcoin embarrassment (From Brownstone Research) |
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Written by Chris Markoch on September 4, 2025 |
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Key Points |
Realty Income offers a high-yield dividend and operational efficiency that could shine as borrowing costs ease. Verizon's 5G investments look more profitable as refinancing costs decline, boosting free cash flow and dividend appeal. Regional banks like PNC benefit from lower deposit costs, stronger loan demand, and improved credit quality in a softer rate environment.
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As of September 3, the CME FedWatch Tool puts the odds that the Federal Reserve will cut interest rates in September at 91.7%. This doesn't mean a rate cut is certain, but it does help investors take the emotion, or our opinions, out of our investment decisions. |
Therefore, if rates are likely to move lower, we should ask what sectors will benefit from lower interest rates. Growth stocks, particularly those in the technology sector, will likely be winners. That would add fuel to the artificial intelligence (AI) trade, which doesn't need much of a catalyst to get investors interested. |
However, there is evidence of a sector rotation as investors look for opportunities beyond this year's popular technology names. Here are three ideas for investors who may be looking to position themselves for a lower interest rate environment. |
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This High-Yield REIT Could Shine If the Fed Cuts Rates |
Investors should be looking for stocks in sectors that may get upgraded when interest rates move lower. Real estate investment trusts (REITs) are a prime example. REITs rely on debt to finance much of their operations, so higher interest rates reduce earnings per share (EPS). |
However, Realty Income Corp. (NYSE: O) stock has underperformed the S&P 500 over the last year but is stabilizing in 2025. That's not all because of the expectation for rate cuts, but they certainly help. |
In this case, investors like the company's diversified asset portfolio, which showcases its triple-net-lease business model, which shifts most of the company's costs to its tenants. In its third-quarter earnings report in August, Realty Income forecasted an increase in adjusted funds from operations (AFFO), which is evidence of the company's operational efficiency. |
Plus, investors often rotate out of bonds and into high-yield dividend stocks as interest rates fall. O stock qualifies with a dividend yield over 5.5% and a payout that's increased for 30 consecutive years. |
Lower Rates Could Unlock a New Chapter for This Telecom Dividend Giant |
The next stock on this list follows the dividend theme. Verizon Communications Inc. (NYSE: VZ) is a telecom giant that has been out of favor in the last five years. |
VZ stock price has been down over 28% since then, and the total return, which includes reinvested dividends, is still down over 3%. |
A key reason for that is the company's investment in 5G, which occurred at a time of higher borrowing costs. Lower real and projected rates will lower the company's refinancing costs and improve recurring revenue, operating margins, and free cash flow. |
It's not to say Verizon's dividend was not safe; it has increased for 20 consecutive years, but it will look more attractive as investors can count on getting some capital growth to accompany that dividend. |
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Rate Cuts Could Spark a Rebound in Regional Bank Stocks |
Finance stocks, particularly regional banking stocks, become attractive when interest rates come down. As 2023 showed investors, the big banks like JPMorgan Chase aren't really that impacted by interest rates either way. But regional banks like The PNC Financial Services Group Inc. (NYSE: PNC) are a different story. |
These banks benefit from rate cuts in several key ways. First, lower rates mean lower deposit costs, which narrows the competition for high-yield savings. Second, loan demand recovers while credit risk improves as borrowers can refinance existing debt. |
Finally, analysts have punished regional banks because the sector typically underperforms in a higher-for-longer rate environment. However, even a modest 25-basis point cut can help analyst sentiment, particularly if the long-term trend is towards lower rates. |
But why PNC in particular? First, the bank is attractively valued, trading below its five-year average price-to-earnings (P/E) ratio. Plus, PNC stock pays an attractive dividend that has increased for 14 consecutive years and has a current yield of 3.32%. |
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