BMO Capital Markets says now might be a good time to start buying high-dividend-yielding stocks. Brian Belski, chief investment strategist, said the S&P 500 stocks with the highest salaries have significantly underperformed the index over the past year and a half, although they have rebounded in recent months. Longer-term higher interest rates have weighed on the group as investors find attractive yields in the bond market. As the Federal Reserve begins to cut interest rates, these yields are expected to begin to decline. Markets are pricing in a 100% chance of a rate cut during the central bank’s September meeting, according to CME’s FedWatch tool, which is based on trader bets. “The relationship between these stocks and interest rates has been misunderstood in recent years, and their sharp underperformance may be an overreaction by investors,” Belsky wrote in a July 30 note. “But because of the correlation, The Reserve Bank may now cut interest rates earlier than previously expected, though a possible fall in long-term yields should provide a boost, he added. Bank of Montreal’s analysis of historical trends also shows that such underperformance is often followed by ” Impressive recovery”. Most importantly, Belski noted, the severity of the underperformance seemed inconsistent with the group’s fundamentals. Here are some of the high-paying names on BMO’s acquisition list. Company analysts rate them as outperform, and they’re in the top 25% of S&P 500 stocks based on dividend yield. BMO believes both drugmakers will outperform. As of Tuesday’s close, Pfizer’s yield was 5.73%, up about 2% year-to-date. The pharmaceutical giant’s second-quarter revenue and adjusted earnings handily topped estimates last week. The company, which benefited from cost-cutting plans and stronger-than-expected sales of its COVID-19 antiviral drugs, also raised its full-year forecast. Pfizer is also developing a once-daily weight-loss drug. In July, the company said it saw “encouraging” data in an early-stage study and planned more early-stage trials in the second half of this year. Meanwhile, AbbVie’s dividend yields 3.34% and is up nearly 20% year to date. AbbVie has been looking to expand its product line as its Humira drug competes with generics. Last week, the company completed its $8.7 billion acquisition of Cerevel Therapeutics, which is developing a variety of drugs to treat neurological and psychiatric diseases. In February, AbbVie completed its $10 billion acquisition of ImmunoGen, which develops cancer drugs. Utilities on the list include American Electric Power Co. and Southern Company. The dividend yield of the former is 3.58%, and the dividend yield of the latter is 3.33%. Utilities have been one of the best-performing sectors in the S&P 500 this year due to expected demand for power from artificial intelligence data centers. The sector is up about 16% so far this year. Meanwhile, shares of American Electric Power are up 21% year to date, while shares of Southern Electric Power are up more than 23%. Real estate, on the other hand, has been one of the S&P’s worst-performing sectors so far this year, rising 4% versus the S&P’s gain of about 16%. BMO has been bullish on REITs and believes a turnaround is coming for the sector. Two names on the list are Digital Realty Trust and Host Hotels & Resorts. Digital Realty Trust, which pays a 3.28% dividend yield, owns, develops and operates data centers – the demand for which is expected to surge due to artificial intelligence. Last week, the company reported second-quarter core funds from operations that beat expectations but revenue that fell short of forecasts. Shares are up about 10% so far this year. Host Hotel & Resorts, which owns luxury and upscale hotels, has a dividend yield of 4.92%, down 16% year to date. The company’s second-quarter working capital was slightly above expectations last week and revenue was in line with expectations. However, the company lowered its full-year working capital guidance and adjusted earnings before interest, taxes, and amortization.
BMO says these high-dividend-yielding stocks could rebound as interest rates fall | Real Time Headlines
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