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Dividend-paying stocks could be on the verge of a tail wind — and investors would do well to snap up names that provide solid income, according to Bank of America. “We believe that we are now in a total return world in which the contribution of dividends to total market returns could be significantly higher than it was in the last decade,” wrote a team led by equity and quant strategist Savita Subramanian in a July 16 report. Dividend payers have lagged the overall market in 2024, largely left in the dust as investors chased artificial intelligence beneficiaries. The Schwab U.S. Dividend Equity ETF (SCHD) has a total return of close to 8% this year, compared with the nearly 15% total return of the S & P 500 . But these stocks could be poised to pop as the Federal Reserve begins lowering interest rates. This would make dividend-paying stocks more attractive to income investors compared with the risk-free yields on Treasurys. Investors will have to be selective about their dividend bets. High dividend yields may seem alluring on paper, but they could be an indication that a stock has been on a downward trajectory. Further, high dividend payout ratios could mean that a company is paying more of its earnings out to shareholders in the form of dividends — a move that may not be sustainable if that company winds up under financial stress. “We advise investors to seek out companies with above-market and secure (not stretched) dividend yields,” Bank of America’s team said. Strategists at the firm screened the Russell 1000, splitting it into quintiles and highlighting the second-highest tranche of dividend-yielding names in the index. “It has guarded against owning distressed companies that migrate into Quintile 1 (the highest dividend yield group) if prices fall ahead of potential dividend cuts,” the team wrote. Here are a few names that made the grade. Bank of America called out Coterra Energy . The stock is only up nearly 2% in 2024, but it has a dividend yield of 3.1%. The oil and natural gas producer is slated to report its quarterly results on Aug. 1. Bank of America analyst Kalei Akamine pointed out a few things investors should watch going into earnings, including a production update from Coterra’s first 10 wells from Wyndham Row development. “Coterra has a track record for delivering strong operating quarters, making it a tactical long into results,” he wrote in a report this week. Akamine reiterated his buy rating on the stock. CTRA YTD mountain Coterra Energy’s YTD performance Utilities giant Southern Co. was on Bank of America’s list of dividend payers as well. Last year, the company completed the first nuclear plant in the U.S. in more than three decades. Earlier this week, Guggenheim analyst Shahriar Pourreza raised his price target on Southern to $87 from $85. His team, which rates the stock a buy, also raised their 2024 to 2028 annual earnings per share estimates. Southern is up almost 17% in 2024, and the stock has a dividend yield of 3.5%. SO YTD mountain Southern Company in 2024 Specialty glass maker and artificial intelligence play Corning was also in Bank of America’s screen. Earlier this month, Corning said it expects its second-quarter core sales to surpass its guidance, with core earnings per share “at the high end of or slightly above guided range.” The company attributed this outperformance to the adoption of optical connectivity products for generative AI. Corning will be issuing its second-quarter results on July 30. The stock has surged 42% this year, no doubt catching a boost from AI excitement. It has a dividend yield of 2.6%. Correction: This story has been updated to correct the percentages in the table.
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