Interest rates, which are currently at record lows, affect the economy as a whole, but have a bigger impact on some companies than others. Here are five stocks that benefit from low interest rates:
- Retail focussed Real Estate Investment Trusts (REITs) such as Scentre Group (ASX: SCG) and Vicinity Centres Re Ltd (ASX: VCX) are reliant on consumer discretionary spending which leads to specialty sales growth for their tenants. This in turn provides a solid base to increase store rents over time. When interest rates are low, consumers can afford to spend more (think lower interest payments on mortgages). Low interest rates also lead to higher REIT valuations as a lower discount rate is used in valuing properties and investors chase above average yields.
- Infrastructure stocks such as Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD) are highly leveraged with debt to equity ratios of 219% and 750% respectively. As such, these stocks benefit from lower interest payments when interest rates are low. Like REITs, these stocks become attractive with relatively high yields when interest rates are low.
- Adelaide Brighton Ltd. (ASX: ABC) which is the largest lime producer and second-largest cement supplier in Australia has delivered strong growth in recent times due to its exposure to infrastructure and residential construction markets. Low interest rates make it easier for property investors and developers to borrow from the banks in leading to a construction boom and ultimately sales growth for Adelaide Brighton.
Foolish takeaway
Whilst these stocks benefit from low interest rates, there are some indications that we might be approaching the bottom of what has been a very long low-interest-rate cycle.
Investors will need to keep this in mind as they look further into these stocks. As an aside, the company identified below pays big dividends and its business shouldn't be adversely affected by rising interest rates…
