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According to Bank of America, dividend stocks are expected to experience a significant surge as investors deploy a massive $6 trillion from money-market funds.
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Investors are likely to seek investment opportunities as the Federal Reserve prepares to cut interest rates in September.
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BMO also supports this view and suggests high-yielding stocks such as Abbvie, Chevron, and Gilead Sciences.
Dividend-paying stocks are anticipated to see a substantial increase in the latter part of the year as investors begin utilizing the $6 trillion sitting in money market funds, as per Bank of America.
Savita Subramanian, a strategist, described the dividend trade as a “pain trade,” indicating that most investors are not adequately positioned to benefit from the potential gains in dividend-paying stocks.
“Over $6 trillion is held in US money market funds as the Fed is poised to commence rate cuts,” Subramanian noted in a recent report. “While bond funds have seen significant inflows year-to-date, we believe there are more opportunities in equities for yield-seeking investors.”
There are over 200 S&P 500 stocks that offer a higher real return potential than the 2% provided by the 10-year Treasury yield, with about 75% of these stocks being under-owned by professional investors, according to the report.
Some of the top-yielding S&P 500 companies include Walgreens Boot Alliance, Altria, Verizon, Ford, and AT&T. While the overall S&P 500 offers a dividend yield of approximately 1.25%, there are nearly 300 S&P 500 stocks that offer a higher yield.
“In general, we anticipate dividends to contribute a larger portion of returns compared to the substantial price returns and multiple expansions seen in the past decade,” Subramanian remarked.
Another Wall Street strategist, Brian Belski of BMO, foresees significant gains from dividend-paying stocks, particularly following their lackluster performance since the October 2022 stock market low.
“We believe these stocks have turned the corner, and their recent relative strength is expected to continue in the coming months,” Belski stated in a report. “With the Fed now likely to cut rates sooner than previously expected, the anticipated decline in longer-term yields should provide a boost.”
Some of the high-yield dividend stocks recommended by Belski include Abbvie, Chevron, Duke Energy, Gilead Sciences, and Pfizer.
Amid a search for yield in anticipation of falling interest rates, dividend-paying stocks could emerge as the overlooked sector of the stock market poised for growth.
The Federal Reserve is anticipated to implement its initial interest rate cut of the current cycle at its September FOMC meeting.
Original article published on Business Insider