The chase for high dividend stocks is far from over, says Bank of America’s Savita Subramanian in a September 28th report.
Mutual funds are most underweight the two highest dividend-yielding sectors in the S&P500, utilities and phone companies, and the firm expects this to reverse as fund managers seek stable returns.
“We’re still in the early stages of building interest, given that dividend yield still remains a somewhat underutilized investment theme,” Subramanian said. “When profits growth grows scarce, investors tend to seek out companies with stable earnings and avoid companies with volatile earnings growth. Companies with strong and stable dividends generally align with this theme.”
“Companies with attractive and above-market dividend yield are still — and could continue to be — a scarce resource,” Subramanian wrote. “Over the next decade, retiring Baby Boomers are shifting in preference from capital appreciation to income. This secular increase in demand creates a compelling case for the relative attractiveness of equities with above average, sustainable and growing dividend yield.”