As the market continues to shift, dividends are poised to make a comeback. According to Bank of America, the contribution of dividends to total market returns is expected to increase significantly in the coming years. This shift comes as the Federal Reserve begins to decrease rates and bond yields begin to decline. However, investors should proceed with caution as they navigate the world of dividend stocks.
Investors looking to capitalize on the resurgence of dividend stocks should focus on securities with above-market yields that are secure and not stretched. Bank of America suggests screening the market for stocks that fall into the second-highest quintile of trailing dividend yields. By avoiding distressed companies that may move into the highest dividend yield group, investors can mitigate risk and ensure a stable return.
Among the names that have made Bank of America’s list for August is PNC Financial Services. With a yield of 3.69% and a 12% gain so far this year, PNC is considered an “all-weather stock” by analyst Ebrahim Poonawala. Similarly, IBM has also caught the bank’s attention with its strong performance in the second quarter and a dividend yield of 3.41%. In the utilities sector, PPL stands out with a yield of 3.27% and a 16% gain year to date. Lastly, real estate investment trust Ventas has a dividend yield of 3.05% and has gained 18% despite the lackluster performance of the real estate sector.
While utilities and certain real estate stocks have performed well, the broader market is anticipating a shift as the Federal Reserve prepares for rate cuts. With the potential for rapid rate cuts on the horizon, investors must be proactive in selecting dividend stocks that will weather the storm and provide a stable return on investment.
As the market continues to evolve, the role of dividends in total market returns is expected to increase. However, investors must exercise caution and diligence in selecting dividend stocks that will provide a secure and stable return. By carefully screening for stocks with above-market yields that are secure and not stretched, investors can position themselves for success in the changing market landscape.