The Federal Reserve began the process of cutting interest rates in 2024 as expected. That came after a series of rate increases beginning in early 2022 made to help cool the economy and curb inflation. The pace of cuts is expected to slow in 2025, but the trend lower should continue. 

Here are two stocks that should benefit from the interest rate environment this year for several reasons. And rates aren't the only catalyst that could propel these names higher in 2025.

The Monthly Dividend Company®

A declining interest rate environment typically boosts demand for stocks in the real estate sector as lower short-term interest rates often leads to decreased mortgage rates. That helps explain why Realty Income (O 1.30%) shares surged from a low of about $50 per share in early 2024 to nearly $65 in October. But the stock plunged from there as 10-year treasury yields rocketed from under 4% to about 4.8%. 

So even after four rate cuts totaling 100 basis points from the Federal Open Market Committee (FOMC) in 2024, the long end of the yield curve didn't follow, and long-term interest rates raced higher. That made dividend-paying equities like Realty Income less attractive versus bonds. 

But Realty Income has much to offer and the decline in the stock brings opportunity for investors in 2025. After its recent decline, Realty's monthly dividend offers investors income with a better yield than long-term treasuries even after they have moved higher. With shares recently hovering near $53, the annual yield is currently about $6%. Its dividend has increased for 30 consecutive years at a 4.3% compound annual growth rate, so investors will likely see another boost announced in 2025. 

Stable growth

Realty Income has also proven it can grow its business in various interest rate environments. Since 1996 it has averaged about 5% annual growth in adjusted funds from operations. Combined with a dividend yield averaging 6%, that has resulted in an 11% total operational average return for investors. 

The company is also diversifying its asset base as it continues to seek growth. It closed the acquisition of fellow real estate investment trust (REIT) Spirit Realty Capital in an all-stock transaction valued at about $9.3 billion in early 2024. That helped to diversify and expand its U.S. assets. 

It also started a joint venture (JV) with Digital Realty Trust to invest in data center development in Northern Virginia. Realty holds an 80% equity interest, contributing $640 million of the $800 million total development cost. 

The company has also been expanding its European real estate platform since 2023 acquiring 82 different assets in five countries that year. It also has a strong balance sheet with some of the highest debt ratings among S&P 500 REITs. Liquidity and low borrowing costs give it room to continue to grow, and the stock is in a good position to rebound in 2025. 

Energy pathway leader

Another dividend-paying stock with a strong underlying business outlook is energy pipeline company Kinder Morgan (KMI 2.10%). Investors have already recognized that it's in a good position in the current environment, pushing the stock up by more than 55% last year. But the use of natural gas is likely to grow, and an interest rate environment trending lower is another plus for Kinder Morgan. 

Kinder Morgan has ownership in, or operates, 67,000 miles of natural gas pipelines, the largest natural gas network in North America. That means about 40% of natural gas consumed in the U.S. is transported by Kinder Morgan pipelines. 

Natural gas prices have been surging as the need to produce increasing amounts of energy to power data centers has become apparent. Kinder Morgan doesn't just transport natural gas, either. This month the company announced an agreement to purchase a natural gas gathering and processing system in North Dakota for $640 million. 

Surprise artificial intelligence (AI) winner

Data center construction has exploded to support expanding artificial intelligence (AI) computing needs. Last year the company also finalized an investment of almost $500 million to expand its Gulf Coast Express pipeline that will increase natural gas deliveries from the Permian Basin to South Texas markets.

It's not just Kinder Morgan management that sees a long-term trend of increasing natural gas use. Constellation Energy recently announced plans to acquire privately held Calpine in part for its low-carbon natural gas generation capacity. Constellation CEO Joe Dominguez acknowledged that renewable sources alone aren't the answer to growing energy needs.

Explaining why the company paid over $16 billion for Calpine and its natural gas capacity, he stated, "We can't grow zero-emission megawatts that fast, to meet this growing [data center] demand." AI data centers also require 24 hour energy supply, which renewable sources can't always provide.

Addressing his long-term vision for the acquisition, Dominquez added, "The grid operators are saying they're going to need natural gas at these volumes for decades to come. That was before we've seen these revisions for load forecasts."

Kinder Morgan chairman Richard Kinder agrees. In his company's third-quarter report, he stated, "With substantial projected increases in natural gas demand both domestically and globally in the coming decades, we have many opportunities on the horizon."

Investors started to recognize that last year, but Kinder Morgan is in a fine position to continue rewarding shareholders for years to come.