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Dividend stocks are set to rise as investors plow $6 trillion out of money market funds, according to Bank of America.
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Investors may want to invest their money as the Fed prepares to cut rates in September.
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BMO agrees, recommending high-yield stocks including Abbvie, Chevron and Gilead Sciences.
Dividend-paying stocks are set to rise sharply in value in the second half of the year as investors deploy the $6 trillion tied up in money market funds, Bank of America said.
Strategist Savita Subramanian called the dividend transaction a “pain trade,” meaning that most investors are ill-prepared for the potential upside of dividend-paying stocks.
“More than $6 trillion is sitting in U.S. money market funds as the Fed gets set to cut rates,” Subramanian said in a note this week. “Bond funds have seen record flows YTD, but we see more opportunity in equities for investors seeking yield.”
According to the memo, there are more than 200 S&P 500 stocks that offer higher real return potential than the 2% offered by the 10-year Treasury yield. About 75% of those stocks are held by professional investors.
Some of the highest yielding S&P 500 companies include Walgreens Boot Alliance, Altria, Verizon, Ford and AT&T. And while the S&P 500 as a whole offers a dividend yield of about 1.25%, there are nearly 300 S&P 500 stocks that offer a higher yield.
“Overall, we expect dividends to account for a larger portion 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 post big gains, especially after their disappointing performance since the stock market bottomed in October 2022.
“We believe these stocks have turned the corner and recent relative strength is likely to continue for months to come,” Belski said in a note on Tuesday. “With the Fed likely to cut rates sooner than expected, the likely decline in long-term yields in response should provide some momentum.”
Some of the high dividend yielding dividend stocks that Belski recommends include Abbvie, Chevron, Duke Energy, Gilead Sciences, and Pfizer.
As investors seek yield at a time when interest rates are set to fall, dividend-paying stocks may be the undervalued segment of the stock market that is set to boom.
The Fed is expected to deliver the first rate cut of the current cycle at its September FOMC meeting.
Read the original article on Business Insider
