Those seeking stability and reliability should consider investing in Dividend Kings. These are stocks that have increased their dividends for 50 or more years in a row. For many investors, they are the cornerstone of their long-term portfolios.
While considered great stocks to own in any market, as inflation eases, the question now is "which of the Dividend Kings in particular could perform strongly on the heels of this macroeconomic shift?"
Examining the current list of 56 names in this category, three stand out as stocks that could perform exceptionally well as inflation normalizes and related factors, such as interest rates, experience favorable changes. These three stocks are Federal Realty Trust (FRT 1.51%), Hormel Foods (HRL 1.41%), and Target (TGT 2.55%).
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1. For Federal Realty Trust, lower inflation could pave the way for a higher valuation
Real estate investment trusts, or REITs, are highly sensitive to interest rates. Interest rates are highly sensitive to the current inflation rate. Hence, stocks like Federal Realty Trust typically pull back in an inflationary environment, but bounce back once inflation eases. With the latest Consumer Price Index (CPI) report indicating easing inflation, if this trend continues into 2026, it may be a boon for Federal Realty Trust shares.
NYSE: FRT
Key Data Points
First and foremost, if lower inflation gives way to the Federal Reserve further lowering interest rates, this stock could rerate. While divided now on further rate cuts, the central bank could shift toward a more dovish stance. Currently, Federal Realty Trust has a forward dividend yield of 4.42%, but back when interest rates were lower, the stock's dividend yield was in the 3% to 4% range.
This suggests shares could experience moderate valuation expansion. Additionally, lower inflation could prove beneficial for the retail sector. As Federal Realty Trust specializes in retail properties, this in turn may help to increase the REIT's net operating income. The REIT has implemented modest dividend increases in recent years, but if cash flow improves, so too could dividend growth.
2. If inflation no longer puts the squeeze on Hormel Foods, juicier dividends may follow
Hormel Foods has 60 consecutive dividend increases under its belt. However, dividend growth in more recent years has been weak. That is, as high inflation has put the squeeze on the meat products company's profitability, it has made bare minimum dividend increases, if only to maintain its Dividend King status.
NYSE: HRL
Key Data Points
However, if inflation continues to ease in the coming year, profitability could come in much stronger than currently anticipated. Shares fell by more than 20% this year, but could bounce back as the bottom line fattens up again.
That's not all. Improved profitability may give way to far juicier dividend increases. The most recent dividend increase was just 1%, but in prior years, Hormel has implemented dividend increases in the mid-single-digit range. Currently, Hormel Foods has a forward dividend yield of 4.8%.
3. Target's turnaround could benefit from lower inflation
If lower inflation helps improve consumer demand, this, in turn, could have a tremendous impact on Target's ongoing turnaround. Yes, one can argue that macroeconomic factors themselves weren't the cause of the big-box retailer's rough patch of lackluster operating performance. Rather, the root cause of Target's troubles had to do with issues related to customer experience and merchandising.
NYSE: TGT
Key Data Points
However, Target has started to make significant improvements in both these areas. If these factors, coupled with an improved macro backdrop, lead to stronger results in the coming year, Target may be in for major price appreciation in the quarters ahead.
After falling from $145 to as low as $83.44 per share, the stock has since bounced back to near $100 per share. Shares continue to climb back toward their former high-water mark. Alongside further upside, the stock could also experience stronger dividend growth. Target has 54 consecutive annual dividend increases under its belt, but its last dividend increase, implemented in June, came in at only 1.8%. Target currently has a forward dividend yield of 4.5%.
