Dividend-paying stocks barely performed last year as rates jumped to two-decade highs and investors flocked to bonds for high yields rather than volatile stocks for similar payouts. The S&P 500 Dividend Aristocrats index increased a meagre 5.7% in 2023 compared to the S&P 500's 26% gain.
However, Bank of America (BofA) believes that dividend-paying stocks are positioned to climb in the remainder of the year as investors start deploying the $6 trillion parked in high-interest money market funds. BofA strategist Savita Subramanian described the dividend trade as a "pain trade" because most investors are not well-positioned to benefit from the potential upside to dividend-paying stocks. "Over $6 trillion sits in US money market funds as the Fed is poised to start cutting rates," Subramanian noted this week. "Bond funds have seen record flows year-to-date, but we see more opportunities within equities for investors searching for yield."
