Bank of America says the US economy is showing signs of supporting dividend stocks. Savita Subramanian, equity and quantitative strategist, wrote in a note on Wednesday that the firm’s US Institutional Gauge, an economic indicator, saw its biggest increase since July 2021 after entering a recovery phase in February. In this environment, investors want to own dividend stocks with above-market yields, he said. “High dividend yields took 88% of the time during the previous recovery. When selecting company names, look for companies that offer above-market yields that are safe rather than excessive, Subramanian wrote in his note. On those properties, he expects to make two-fifths of the Russell 1000 index by tracking his dividend yield. It comprises the index’s second-highest dividend yielding segment. His screen is to protect against ownership of distressed companies that could end up in the first quintile, the group with the highest dividend yields, if share prices fall before potential dividend cuts. Here are some of the names on Bank of America’s April list. AES and Sempra are the two utilities on the list, with yields of 4% and 3.4%, respectively. In general, utility companies are often known for their predictable dividends. Although they have lagged behind the overall market this year, they have seen some growth in recent months. The Utilities Select Sector SPDR Fund ( XLU ) is up 5% for the year and 4.9% in the past month. In late February, Sempra CEO Jeffrey Martin told CNBC’s Jim Cramer that the company had increased its capital plan to $48 billion to accelerate financing initiatives such as modernizing the grid and integrating renewable energy into the grid. “The record $48 billion capital program creates a roadmap for our future growth and should support rate-based growth for our utilities in the 9% to 10% range,” he said on “Mad Money.” , shares of Sempra are down about 4%, while shares of AES are down about 10%. A number of energy companies are also on the list, including APA and HF Sinclair. APA has a dividend yield of 3.1%, while HF Sinclair has a dividend yield of 3.5%. In January, APA announced it would acquire Calon Petroleum in a $4.5 billion all-stock deal. APA CEO John Christman told CNBC in February that the deal strengthens APA’s “backbone” in the U.S. Permian Basin. APA’s shares are down about 10% so far this year, while HF Sinclair shares are up about 3% over the same period. Finally, Citigroup is one of the financial institutions that Bank of America focuses on Citi earlier this month reported first-quarter earnings that beat expectations, partly due to better-than-expected results from its investment banking and trading units. The company’s shares are up 22% so far this year.
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