3 Stocks Poised to Benefit From a Federal Rate Cut

Key Points

• AT&T could lower its borrowing costs if the Fed cuts rates.

• Digital Realty Trust's dividend yield should be more attractive to bond investors in a lower-rate environment.

• D.R. Horton should be a big winner if a Fed rate cut leads to lower mortgage rates.

• 10 stocks we like better than D.R. Horton ›

Today's the day (assuming you're reading this on Wednesday, Sept. 17, 2025). The Federal Open Markets Committee (FOMC) is widely expected to announce a lower federal funds rate at the conclusion of its two-day meeting later this afternoon.

The stock market will likely enjoy a nice bump on Thursday if the Fed indeed cuts rates -- and especially if the reduction is larger than expected. However, some stocks will be bigger winners than others. Here are three stocks poised to benefit from a federal rate cut.

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1. AT&T

If the Fed cuts rates, it will lower the costs for companies to refinance debt. The move would also likely reduce companies' interest expense on variable-rate loans, whose interest rates fluctuate. AT&T (NYSE: T) stands out as one of the major beneficiaries from this front.

The telecommunications giant's net debt totals roughly $120 billion. Nearly $9.3 billion of that debt matures by June 30, 2026. AT&T incurred $3.3 billion of interest expense in the first half of 2025.

There's another way that AT&T could be helped by a rate cut that perhaps isn't as obvious. When interest rates decline, bond yields usually fall in tandem. This tends to make stocks with high dividend yields more attractive to investors. Enter AT&T, with its forward dividend yield of 3.75%.

The allure of a potential Fed rate cut isn't the only reason for investors to like AT&T, though. While the overall stock market is priced at a premium, the telecom company's shares trade at a forward price-to-earnings ratio of only 13.3.

2. Digital Realty Trust

I think the same reasons why AT&T should benefit from a rate cut apply even more to Digital Realty Trust (NYSE: DLR). Granted, Digital Realty Trust doesn't have nearly as large a debt load as AT&T. Only 7% of its total debt is floating-rate debt that would be immediately helped by lower rates.

However, the surging demand for artificial intelligence (AI) continues to drive a greater need for data centers. Digital Realty Trust is one of the largest real estate investment trusts (REITs) specializing in the data center market. It must expand the number of data center properties in its portfolio rapidly to capitalize on the huge AI-fueled opportunity.

The relationship between lower rates, bonds, and dividend stocks should also work significantly to Digital Realty Trust's advantage. REITs are often viewed as bond proxies. Digital Realty Trust's yield of 2.79% would likely become more appealing to many investors in a lower-rate environment.

It's also possible, if not probable, that lower interest rates could spur organizations to accelerate their data center infrastructure spending. Digital Realty Trust could see its occupancy rates jump as a result.

3. D.R. Horton

Despite an ongoing housing shortage in the U.S., D.R. Horton's (NYSE: DHI) business hasn't grown as much as management would like. That's largely because historically high inflation rates led to higher mortgage rates that served as barriers for many potential homebuyers. A Fed rate cut could help alleviate this problem.

To be sure, mortgage rates don't always move in lockstep with the federal funds rates set by the FOMC. However, if 10-year Treasury yields fall as a result of a Fed rate cut, look for mortgage rates to follow suit. This would make it more affordable for many Americans to purchase a new home.

D.R. Horton would be a no-brainer beneficiary if this happens. The company is the largest homebuilder in the U.S. by volume. It builds roughly one out of seven new single-family homes in the country. D.R. Horton claims the leading market share in 62 of the 126 markets where it operates.

I think it's noteworthy what Warren Buffett, arguably the greatest investor of all time, thinks about D.R. Horton. Buffett has been a net seller of stocks for 11 consecutive quarters. However, he initiated new positions in six stocks in the second quarter of 2025. D.R. Horton was one of them.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends D.R. Horton and Digital Realty Trust. The Motley Fool has a disclosure policy.