In the coming months, the Federal Reserve is anticipated to implement interest rate reductions, and this regulatory action is expected to have a positive impact on high-yield dividend stocks. This projection is based on the historical trend of fund managers aggressively purchasing such stocks in low-rate environments, leading them to outperform major benchmark indices. Among the high-yield dividend stocks that are well-positioned to capitalize on this trend are AT&T and Pfizer.

AT&T, a prominent player in the U.S. telecom industry, is currently trading at a significant discount compared to the industry average. With a trailing price-to-earnings ratio of only 8.84, well below the industry average of 11.7, AT&T appears deeply undervalued. The company offers an impressive annualized yield of 6.4%, which is substantially higher than the average among global telecom companies (4%) and S&P 500 listed stocks (1.47%).

What makes AT&T's substantial yield sustainable is its ambitious cost-savings plan. Having already achieved $6 billion in savings as part of the plan initiated in 2020, the company is now working towards reducing costs by an additional $2 billion-plus by mid-2026. This reduction in expenses is expected to support AT&T's top-tier dividend program and aid in debt repayment. However, analysts do not anticipate substantial top-line growth for AT&T in the coming years due to intense competition in the telecom industry.

Pfizer, a leading pharmaceutical company globally, has faced challenges such as a decline in the sales of its COVID-19 products and the expiration of several major patents. As a result, the company's stock price has experienced a significant drop in the past two years. Yet, long-term investors may find Pfizer's stock to be an outstanding bargain. With shares trading at about 12 times forward earnings, lower than the industry average of 17, Pfizer offers the highest yield among big pharma stocks, standing at an impressive 6.2%.

Concerns about Pfizer's clinical pipeline have contributed to the potential discount in its stock price, despite the company's noteworthy string of multibillion-dollar buyouts. However, Pfizer's robust oncology pipeline holds promise, with the potential to produce several new blockbuster drugs in the coming years. If this potential is realized, shareholders could expect stellar returns from Pfizer's shares.

Investors should note that while AT&T and Pfizer present compelling opportunities, The Motley Fool Stock Advisor analyst team recently identified 10 other stocks they believe to be the best investments currently. This selection of stocks has the potential to generate significant returns in the years to come.

As the projected interest rate reductions approach, high-yield dividend stocks like AT&T and Pfizer appear poised for growth. With their attractively high yields, undervalued positions, and potential for improving fundamentals, these stocks could offer investors favorable opportunities in the evolving market landscape.

Disclaimer: The author George Budwell has positions in AT&T and Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.