Bank of America strategist believes that with the upcoming rate cut by the Federal Reserve, there are more opportunities in the US stock market for investors seeking higher returns.
According to Bank of America, as investors begin to utilize the $6 trillion in funds in the money market mutual funds, dividend-paying stocks are expected to surge in the second half of this year.
Bank of America strategist Savita Subramanian called dividend trading a "painful trade," meaning most investors are not adequately prepared for the potential rise of such stocks.
Subramanian said in a report this week, "With over $6 trillion parked in US money market funds as the Fed prepares to cut rates, bond funds have seen record inflows this year, but we think there's more opportunity in stocks for investors seeking yield."
According to the report, there are over 200 stocks whose actual return potential is higher than the 2% yield of 10-year Treasury bonds, with around 75% of the stock being undervalued by professional investors.$S&P 500 Index (.SPX.US)$The S&P 500 index's highest-yielding companies include [company names not provided]. Although the overall dividend yield of the S&P 500 index is about 1.25%, nearly 300 component stocks have a higher-than-average dividend yield.
Another Wall Street strategist, Brian Belski, predicts that dividend-paying stocks will bring huge returns, especially after underperforming since the stock market bottomed out in October 2022. $Walgreens Boots Alliance (WBA.US)$,$Altria (MO.US)$,$Verizon (VZ.US)$,$Ford Motor (F.US)$And.$AT&T (T.US)$Some of the high-dividend stocks recommended by Belski include Duke Energy (DUK.US).
Subramanian said, "Overall, we expect dividends to represent a larger proportion of returns."
Another Wall Street strategist - $Bank of Montreal (BMO.US)$Brian Belski expects that dividend-paying stocks will bring huge returns, especially after their lackluster performance since October 2022.
Belski said in a note on Tuesday, "We think these stocks have turned the corner and the recent relative strength may continue in the coming months." He explained, "As the Fed now potentially cuts rates earlier than previously expected, longer term yields may come down, which should be a positive for dividend paying stocks."
Some high-dividend stocks recommended by Belski include:$AbbVie (ABBV.US)$,$Chevron (CVX.US)$,$Duke Energy (DUK.US)$,$Gilead Sciences (GILD.US)$And.$Pfizer (PFE.US)$.
As interest rates are poised to drop, investors are chasing higher yields, and dividend-paying stocks may be an area of the stock market that is temporarily out of favor but will eventually flourish.
Editor/Emily