Bank of America argued Thursday that dividends will see increased importance as investors focus more on total returns in the current investment environment.
"We believe 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, a period marked by falling cash yields and lofty price returns," the firm's equity and quant strategy team stated in a note to clients.
As part of this strategy, BofA recommended investors "seek out companies with above-market and secure (not stretched) dividend yields."
To locate potential dividend opportunities, the financial institution separated dividend-paying stocks in the Russell 1000 into five groups, sorted by their dividend yield. The firm advised investors to focus on the second-highest grouping of dividend yielders in the index (identified in the chart below as Quintile 2).
The company noted that some companies with high dividend yields can represent a riskier investment -- those with dividends that are "stretched." Thus, the firm suggests gravitating towards the second group, which offers relatively high dividend payouts, but significantly lower risk of loss. See chart below:
Among some of the names that fall in Quantile 2 include the likes of HP Inc. ( NYSE: HPQ ), Phillips 66 ( NYSE: PSX ), Morgan Stanley ( NYSE: MS ) and Gilead Sciences, Inc. ( NASDAQ: GILD ). From a dividend yield perspective HPQ provides a dividend yield of 3.72%, PSX sits at 3.63%, and MS and GILD both provide a 3.38% dividend yield.
For another approach to dividend investing, see the markets five largest dividend focused exchange traded funds: Vanguard Dividend Appreciation ETF ( VIG ), Vanguard High Dividend Yield Index ETF ( VYM ), Schwab US Dividend Equity ETF ( SCHD ), iShares Core Dividend Growth ETF ( DGRO ), and iShares Select Dividend ETF ( DVY ).
In broader financial news, stock index futures remain relatively unchanged on Thursday morning as Wall Street looks ahead to more jobs data.
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BofA touts dividends as Wall Street enters 'total return world'