BofA’s Safety Play: 5 Dividend Stocks to Hedge an Overvalued Market
Michael Hartnett, Chief Investment Strategist at Bank of America and one of Wall Street’s most respected voices, recently issued a report warning that most key market indicators are approaching or have surpassed levels seen in March 2000, just before the dot-com bubble burst. Although the S&P 500’s price-to-book ratio has modestly retreated to 4.7 from 5.1 in August, its trailing price-to-earnings ratio remains as high as 26 times, indicating the stock market is historically expensive.
In his August note to clients, Hartnett emphasized that while interest rate cuts could prolong the bull market, all-time highs suggest such positives may have already been priced in. In the event of a major market pullback, the firm recommends focusing on bonds and international stocks. A weaker dollar and lower interest rates could also positively impact the administration by helping to reduce the deficit and debt pressure.
Given that dividends have contributed approximately 32% of the total return of the S&P 500 since 1926, Bank of America screened its research coverage for five high-safety dividend stocks. These companies operate in bond-proxy sectors including utilities, energy midstream, telecommunications, consumer staples, and net-lease REITs. While all five stocks carry a “Buy” rating, the report stresses that no single analyst report should be used as the sole basis for any investment decision.
Top Picks:
- AT&T Inc. (T.US)
The world’s fourth-largest telecommunications company by revenue offers a solid dividend yield of 3.75%. Its business spans wireless communications, fiber services, and video services in Latin America. Bank of America has set a $32 price target on the stock.
- American Electric Power Co. Inc. (AEP.US)
One of the largest electric utilities in the U.S., serving over 5 million customers across 11 states, with a dividend yield of 3.38%. Its power generation mix includes coal, natural gas, and renewables. The bank’s price target is $114.
- Colgate-Palmolive Co. (CL.US)
A consumer staples giant that has paid a dividend every year since 1895, currently yielding 2.40%. It is focused on Oral Care, Personal Care, Home Care, and Pet Nutrition products. Price target: $98.
- Enterprise Products Partners L.P. (EPD.US)
One of the largest publicly traded energy midstream partnerships, offering a robust dividend yield of 6.76%. Its operations include natural gas liquids processing and crude oil pipeline transportation, with a distribution coverage ratio significantly above 1x. Price target: $38.
- VICI Properties Inc. (VICI.US)
A REIT specializing in casino and entertainment properties, with a dividend yield of 5.16%. It owns 93 experiential assets, including iconic Las Strip venues like Caesars Palace, under long-term triple-net leases. Price target: $34.
Consumer Products and Services
Dividend Yielding Stocks
Oil & Gas
Real Estate Investment Trust
Utilities
