3 dividend stocks to buy with $5000

As of this writing, Wall Street is expecting a smaller-than-expected Fed Funds rate cut from Fed Chairman Jerome Powell. Due to disappointing PPI figures and the continued threat of inflation, a 25 basis point cut is now expected, down from a larger one in projections a month ago.

Self-defense for investments

The market has undoubtedly become more volatile in recent months. With inflation slowing but almost twice the 2020 rate, the economy is in a fragile state. While the stock market has recovered to the Dow 40,000 region, another 2,000-point drop like the one on August 5, 2024, can easily happen again and worse. In bear market environments, defensive stocks are a safe haven until the financial climate improves. Sectors with constant income due to the constant requirements of their industry, such as utilities, precious metals, food, shelter and healthcare are considered defensive.

24/7 Wall Street has an enormous database of dividend stocks from all industries that meet a wide range of criteria for investors. For a total investment of $5,000, the three stocks below have the following characteristics for investors looking to maximize their investment returns in bear market conditions at the time of this writing:

• Each has a market price of under $15 for over 100 shares with an investment of $1,600.
• All of these can be classified as defensive sector companies.
• Each has a double-digit return.
• Each stock has years of uninterrupted dividend-paying history.

Vale SA

Vale SA is a major provider of hydroelectric power and rail transportation in Brazil, in addition to its world-class mining operations.

Stock #1: Vale SA (NYSE: VALE)

Yield: 17.39%

Shares for $1,666: 161.5

Annual Amount of Dividends: ~$289.72

With a market capitalization of $45 billion, Rio De Janeiro-headquartered Vale SA is one of the most important conglomerate entities in Brazil. As the ‘B’s of BRICS, Brazil, along with Russia, India, China and South Africa, have collectively become a formidable economic bloc with currencies boasting the physical assets to back them up.

One of the richest nations on the planet in resources, Brazil has a number of multinational companies involved in the cultivation, development, production and sale of these raw materials and commodities.

While Vale SA’s hydropower and rail operations are essential utilities for Brazil, its global copper mining activities, in particular, are where analysts believe the stock’s long-term upside lies.

The huge amount of energy required to power AI and the proliferation of data centers required to operate AI means that the corresponding electrical infrastructure must grow commensurately. As such, this means that the demand for copper electrical wires is expected to increase in the near and future future. This overwhelming demand for energy is also part of what is fueling the return to oil and gas, as wind and solar power sources prove inadequate for the task.

Since the launch of ChatGPT, copper futures have gained 19%, with spot prices up 12% on the London Metal Exchange. Singaporean commodities trading titan Trafigura estimates that the combined needs of cumulative growth in AI, electricity demand and electric vehicles will create an additional 10 million pounds of demand for copper over the next 10 years. Its Salobo copper mines are the largest in Brazil. Vale SA has already budgeted $3.3 billion to expand its copper production to 500,000 tonnes a year by 2030 from 326,000 in 2023.

The company has come under some downward pressure in recent months due to succession issues, but those concerns were addressed with the announcement that former CFO Gustavo Pimenta will be promoted to CEO in early September.

Vale SA’s ADRs trade on the NYSE, but the shares are also listed on the stock exchanges in Rio De Janeiro, Jakarta, Paris and Madrid.

PennyMac Mortgage Investment Trust

PennyMac is currently the largest mortgage correspondent lender in the US.

Stock #2: PennyMac Mortgage Investment Trust (NYSE: PMT)

Yield: 11.59%

Shares for $1,666: 119.85

Annual amount of dividends: ~$193.08

Founded in 2009 and headquartered in Westlake Village, CA, PennyMac Mortgage Investment Trust is a Real Estate Investment Trust (REIT) registered with the SEC. REITs must pay out 90% of profits to meet their tax-exempt status. PennyMac is currently the largest mortgage correspondent lender in the US.

The REIT sector itself is not necessarily a defensive sector, as it can take many different configurations, each containing a different degree of risk during a bear market. REITs that directly own properties, for example, are at greater risk of rent defaults, property damage and other concerns. In the case of PennyMac Mortgage Investment Trust, it acts as a large correspondent lender dealing with diversified securitized mortgage collection packages, so it is 2 or more times removed from physical real estate.

Within the Credit Sensitive Strategies segment, PennyMac engages in credit risk transfer swaps, CRTs, subordinated mortgage-backed securities, distressed loans and direct real estate financing. Agencies such as Fannie Mae and Freddie Mac use CRT swaps to provide a vehicle for offloading risk.

PennyMac’s Interest Rate Sensitive Strategies division handles agency and non-agency senior mortgage backed securities, interest rate spreads, mortgage servicing rights and hedging strategies.

The correspondent production group acquires, pools and resells mortgage loans or securitizes them for sale to government-sponsored entities.

Fortitude Gold Corporation

Owning 5 gold mines in Nevada, Fortitude Gold’s proven reserves can produce up to 220,000 oz. of gold and 1.3 million oz. silver.

Stock #3: Fortitude Gold Corporation (OTC: FTCO)

Yield: 11.03%

Shares for $1,666: 378.63

Monthly Dividend Income: ~$15.31

Annual dividend income: ~$183.75

One of the most reliable asset classes for hedging against inflation is precious metals. However, with gold at over $2,580 an ounce, deep-pocketed investors have already been hoarding it and driving up the global market price. Physical gold and any ETF that holds gold is likely to move in tandem, so the next best opportunity for less affluent individual investors looking for a lagging indicator to latch on to could be in a gold mine stock which also provides a sizeable dividend.

Owning five gold mining properties in Nevada, headquartered in Colorado Springs, CO, Fortitude Gold Corporation is a gold and silver mining company with ongoing operations. Their flagship project is the Isabella Pearl Mine, which has 601 unpatented claims spanning 10,430 acres in Nevada. Proved reserves may produce up to 220,000 oz. of gold and 1.3 million oz. silver.

Fortitude Gold Corporation is a gold and silver mining company headquartered in Colorado Springs, CO. Owning five gold mining properties in Nevada, its flagship project is the 10,400-acre Isabella Pearl. Fortitude’s proven reserves can yield up to 220,000 oz. of gold and 1.3 million oz. silver.

In late July, Fortitude Gold announced the strike multiple oxide gold drill intercepts at surface and near the Scarlet North target along the Company’s Isabella Pearl trend. The Scarlet North target is 700 meters northwest of the Isabella Pearl Hall processing and filtration facility. Intercepts include 9.14 meters grading 2.33 grams per tonne (g/t) gold over a radius of 16.76 meters grading 1.58 g/t gold. The company also released several chip surface samples from a new, undrilled target in the Scarlet North area, the largest assaying 2.24 g/t gold.

As an added bonus for income-conscious investors, Fortitude Gold pays its dividend distribution monthly as opposed to quarterly.

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