These 2 Stocks Could Soar if the Fed Cuts Rates Further in 2025

As the Federal Reserve continues to hint at further interest rate cuts in 2025, investors are on the lookout for stocks that could benefit from a lower-rate environment. Two companies that stand out are Realty Income (O) and Kinder Morgan (KMI), both of which have strong fundamentals and are well-positioned to capitalize on a falling interest rate environment.



Realty Income (O): The Monthly Dividend Company

Realty Income, often referred to as "The Monthly Dividend Company," is a real estate investment trust (REIT) that specializes in acquiring and managing commercial properties. The company's monthly dividend and high yield make it an attractive option for income-seeking investors, especially when interest rates are falling. As of recently, Realty Income's annual yield is about 6%, which is higher than long-term Treasury yields even after they have moved higher.

One of the key factors that make Realty Income an attractive investment is its consistent dividend growth. The company has increased its dividend for 30 consecutive years at a compound annual rate of 4.3%. This consistent dividend growth is expected to continue in 2025, providing investors with a reliable income stream.

Realty Income's strong balance sheet and liquidity will make it easier for the company to continue growing, positioning it well for a rebound in 2025. The company has also been diversifying its asset base, expanding its European real estate platform, and forming joint ventures like the one with Digital Realty Trust. This diversification helps mitigate risk and provides opportunities for growth.



Kinder Morgan (KMI): Energy Pathway Leader

Kinder Morgan, a leading energy pipeline operator, is well-positioned to benefit from a falling interest rate environment. The company's extensive natural gas pipeline network, which transports about 40% of the natural gas consumed in the U.S., makes it an attractive investment in a lower-rate environment.

The increasing use of natural gas, driven by data center construction and AI software, is expected to benefit Kinder Morgan. The company has invested nearly $500 million to expand its Gulf Coast Express pipeline, which will increase natural gas deliveries from the Permian Basin to southern Texas. This expansion, along with the company's strong financial performance and dividend growth, positions Kinder Morgan well to capitalize on a lower-rate environment.

Potential Risks and Challenges

While Realty Income and Kinder Morgan are well-positioned to benefit from further rate cuts in 2025, there are still several risks and challenges that these companies may face. Realty Income's stock price has been volatile, and changes in market sentiment and investor preferences could lead to further price fluctuations. Additionally, if the company's funds from operations (FFO) growth slows or the economy enters a recession, dividend increases could be at risk.

Kinder Morgan's business is heavily tied to natural gas prices, and if natural gas prices decline or become more volatile, it could negatively impact the company's earnings and cash flow. The midstream energy sector is also competitive, and if Kinder Morgan's competitors gain a significant advantage, it could lead to lower volumes and reduced profitability for the company.

In conclusion, Realty Income and Kinder Morgan are well-positioned to benefit from further rate cuts in 2025, thanks to their strong fundamentals and attractive investment characteristics. However, investors should be aware of the potential risks and challenges that these companies may face, and consider these factors when making investment decisions. As always, it is essential to conduct thorough research and consult with a financial advisor before making any investment decisions.