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Dividend stocks are expected to rise as investors deploy $6 trillion from money market funds, according to Bank of America.
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Investors may be looking to put their money to work as the Fed prepares to cut interest rates in September.
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BMO agrees and recommends high-yielding stocks including Abbvie, Chevron and Gilead Sciences.
Dividend-paying stocks are poised to climb in the second half of the year as investors begin to deploy the $6 trillion that is in money market funds, according to Bank of America.
Strategist Savita Subramanian has called dividend trading “pain trading,” meaning that the majority of investors are not properly positioned for the potential upside gains of dividend-paying stocks.
“More than $6 trillion is flowing into U.S. money market funds as the Fed prepares to begin cutting rates,” Subramanian said in a note this week. “Bond funds have seen record flows year-to-date, but we see more opportunities in equities for yield-seeking investors.”
There are more than 200 of them S&P 500 stocks that offer real return potential above the 2% offered by the 10-year Treasury yield, according to the note, and about 75% of these stocks are under-owned by professional investors.
Some of the most profitable companies in the S&P 500 include Walgreens Boots Alliance, Altria, Verizon, FordAnd AT&T. And while the S&P 500 as a whole offers a dividend yield of about 1.25%, nearly 300 stocks in the S&P 500 offer a higher yield.
“Overall, we expect dividends to account for a larger share of returns than the outsized price returns and multiple expansion of the past decade,” Subramanian said.
BMO’s Brian Belski is another Wall Street strategist who expects dividend-paying stocks to deliver big gains, especially after their lackluster performance since the stock market bottomed in October 2022.
“We believe these stocks have turned a corner and their recent relative strength should persist in the months ahead,” Belski said in a note Tuesday. “With the Fed now likely to cut rates sooner than expected, the likely decline in long-term yields in response to the move should provide a boost.”
Some of the high dividend stocks recommended by Belski include Abbvie, Chevron, Duke Energy, Gilead SciencesAnd Pfizer.
As investors search for yield at a time when interest rates are set to fall, dividend-paying stocks could be the unloved sector of the stock market that’s poised to boom.
The Federal Reserve is expected to make its first interest rate cut of the current cycle at the September FOMC meeting.
Read the original article on Business Insider
