Bank of America Securities strategist Savita Subramanian advises investors to seek out stable, dividend-paying stocks that demonstrate sustainable payouts rather than chasing the highest yields. Amid summer volatility and the S&P 500 surpassing BofA’s year-end target, she suggests discretion, recommending companies from the second quintile of trailing dividend yield in the Russell 1000.
Key recommendations for August include Chevron, Duke Energy, Gap, and Host Hotels & Resorts, all offering attractive yields and analyst upside, providing potential stability and income in an unpredictable market environment.
In a period marked by persistent market volatility, investors looking for a haven might consider dividend stocks, with Bank of America Securities offering strategic guidance on how to pick the right ones. Savita Subramanian, head of the firm's U.S. equity and quantitative strategy, emphasizes the importance of selecting companies that are not overextending themselves to make dividend payouts, thereby ensuring their sustainability.
Subramanian highlighted that despite stocks remaining near their highs, volatility has been a constant theme this summer. The S&P 500 has even surpassed Bank of America Securities' year-end target of 7,100, suggesting that a more discerning approach is necessary, as a significant market dip could be on the horizon. “Now is not the time to buy the index and close your eyes,” she advised CNBC's "Squawk Box," noting that a 10% market correction occurs roughly once a year on average.
Dividend stocks serve as a relatively safe harbor against such volatility, providing investors with a return even when price appreciation is uncertain. However, Subramanian cautions against chasing the highest yields, which can often indicate a declining stock price or a company under financial strain, making them prone to slashing payouts.
Instead, her recommendation is to seek out stocks that offer sustainable dividends, ensuring a solid income stream. “If we are returning to a total return world in which the contribution of dividends to total market returns could be higher than during the zero interest rates period, we advise investors to seek out companies with above-market but not stretched dividend yields,” she wrote in a recent note. The S&P 500 index currently yields 1.02%.
To identify suitable candidates, Subramanian screened for names within the second quintile of trailing dividend yield in the Russell 1000 index. This approach aims to pinpoint companies that are less likely to be distressed compared to those offering the highest yields (first quintile). Here are some of the companies that made Bank of America's list for August:
- Chevron (CVX): This oil major boasts a 3.55% dividend yield and has seen its shares jump 31% year-to-date, buoyed by elevated oil prices amidst Middle East conflicts. Chevron reported robust quarterly results on July 31, with net income surging by approximately 400% year-over-year to $12 billion. CEO Mike Wirth commented, “We're kind of firing on all cylinders, which is good, because the world needs it.” As a 'Dividend Aristocrat,' Chevron has a track record of increasing its payout for over 25 consecutive years. Analysts, according to LSEG, rate it an average 'buy' with an 8% upside to its average price target.
- Duke Energy (DUK): With a 3.59% dividend yield and a 3% gain year-to-date, Duke Energy also holds an average 'buy' rating from LSEG, with nearly 13% upside potential. The utility company reported mixed second-quarter results earlier this month, exceeding adjusted earnings per share expectations but falling short on revenue.
- Gap (GAP): Delivering a 3.29% yield, Gap's shares are reported to be down about 17% in 2026 (likely a typo, assumed to be the current year). The retailer's upcoming second-quarter results are highly anticipated after a disappointing first quarter where sales guidance was cut. CEO Richard Dickson attributed sluggish Old Navy sales to product issues rather than broader macroeconomic challenges, stating, “When you have the right product at the right price value equation, customers are there, and our seasonal categories just got off to a weaker start.” Despite recent performance, analysts largely foresee better times ahead, with nearly half rating it a 'buy' or 'strong buy' and LSEG data showing almost 20% upside to the average price target.
- Host Hotels & Resorts (HST): This real estate investment trust (REIT), which owns luxury and upper-upscale hotels globally, offers a 3.56% yield and has seen its shares climb approximately 27% year-to-date. Host Hotels & Resorts received an average 'buy' rating from LSEG, with an 11% upside. Earlier this month, its second-quarter adjusted funds from operations (FFO) and revenue surpassed expectations, leading the company to raise its full-year adjusted FFO guidance. CEO James Risoleo noted, “We are encouraged by the durability of demand across our portfolio, as affluent consumers continue to prioritize travel and group demand remains healthy across many of our markets.”
These selections offer investors a strategic path to generate income and navigate market uncertainty through carefully chosen dividend-paying companies.
