BofA: The Bullish Argument For Dividend Stocks Is A Simple Case Of Supply And Demand

Bank of America’s Equity and Quant Strategy team led by Savita Subramanian has a pretty boring investment idea for you: dividend stocks.

Their argument is simple. Demand is rising as reflected by the again population who tend to prefer income securities…


Photo: Bank of America Merrill Lynch

And supply is low as reflected by low dividend payout ratios (See chart below).  There’s also a low supply of stocks paying out any dividends.


Photo: Bank of America Merrill Lynch

“[W]e think that cash return may be one of the most bullish themes for US equity investors as a solution to the supply / demand imbalance of income oriented investments,” wrote Subramanian.

Because there are so many corporations with the capacity to boost dividends, she recommends going for “dividend growers” over “high yielders” which are stocks that already have a high payout relative to stock price.

Furthermore, the team isn’t too concerned about the prospect of expiring favourable dividend tax rates. “We have found that the performance of dividend-based strategies has more to do with growth opportunities than with the fluctuating tax rates for dividends,” wrote Subramanian.

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