Investors searching for dividend-paying stocks in this market don’t have to sacrifice quality. In fact, there are several companies that have strong balance sheets and good management, as well as a stable dividend with growth potential, according to a note from UBS last week. Those dividends may begin to look more attractive to investors as the Federal Reserve starts cutting interest rates. Bond yields will also move lower, which could have investors seeking income elsewhere. The central bank has indicated it will begin decreasing rates sometime this year. What’s more, income generated from dividend-paying equities can help protect portfolios during times of market volatility. UBS compiled a list of global, high-quality dividend stocks using its quantitative models, as well as its fundamental analysts. First, its machine-learning algorithms screened for names with a high-quality dividend stream with the earnings power and balance sheet to support it. The algorithm also assessed the potential for the stock to outperform its sector. Then, the firm’s fundamental analysts looked at subjective factors, such as management quality and investor sentiment. The algorithm then allocated the best stocks, taking regions and sectors into consideration to have a diverse source of income. “Throughout the process, we emphasise the stability and growth potential of dividend streams, as opposed to the current yield,” analyst Claire Jones said. Here are some of the U.S. names that made the cut. Investors can grab a 2.69% dividend yield with Home Depot . The home improvement retailer, which is down more than 2% year to date, reported a revenue miss for its first quarter. However, the company reaffirmed its full-year guidance, expecting total sales to grow 1% in fiscal 2024. “The home improvement customer is extremely healthy from a financial perspective,” Chief Financial Officer Richard McPhail said in an interview with CNBC after that earnings report in May. “And so it’s not the case of not having the ability to spend. What they tell us is they’re just simply deferring these projects as given higher rates, it just doesn’t seem the right moment to execute.” In the energy space, Exxon Mobil is among the names that stands out to UBS. The oil giant boasts a 3.35% dividend yield and is up more than 11% so far this year. In May, Exxon acquired Pioneer Natural Resources in a deal valued at $59.5 billion. The company said the acquisition more than doubles its production in the Permian Basin. Meanwhile, oil market analysts are forecasting a tighter market in the third quarter. “With oil inventories beginning to decline as a result of solid demand and constrained supply growth, investors have started to build oil exposure again,” Giovanni Staunovo, commodity analyst at UBS, wrote in a note Thursday. He is forecasting that Brent crude will hit $90 per barrel this quarter. Several financial names also made the list, including CME Group and JPMorgan . The former has a dividend yield of 2.34%, while the latter yields 2.25%. In addition to its regular dividend, CME Group has also paid a special dividend in the past. At the end of 2023, it paid a special dividend of $5.25 a share and at the end of 2022, it paid $4.50 per share. Shares of CME Group are down 7% year to date, while JPMorgan has rallied 20%. Although real estate is the only S & P sector in the red this year — down more than 4% — real estate investment trusts are generally known for their dividends. Prologis , which yields 3.35%, is one name that UBS likes. In a separate note in late June, UBS analyst Jonathan Woloshin pointed out that Prologis is the world’s largest owner of industrial properties — and the industrial sector remains strong. “PLD has a four-prong operating model consisting of owned and operated real estate, development, profit potential for its Essentials Business and strategic capital management that provides multiple avenues of value-creation potential,” he said. Shares of Prologis have tumbled nearly 14% so far this year. Utilities are also generally known for their predictable dividends. While the sector has run higher this year, Sempra is trading at a discount . The stock, which yields 3.26%, is up fractionally for the year. Sempra announced in late June that it reached a nonbinding deal to supply liquified natural gas to Saudi state oil giant Aramco. It also boosted its capital plan to $48 billion to fund initiatives, such as grid modernization, Sempra CEO Jeffrey Martin told CNBC’s Jim Cramer in February. “A $48 billion record capital plan really lays out a roadmap for our future growth and should support rate-based growth at our utilities at between 9% and 10%,” he said on ” Mad Money .” — CNBC’s Melissa Repko and Spencer Kimball contributed reporting.
