It's only January, but investors are already grappling with volatility, fears of higher interest rates and surging inflation. BMO Capital Markets is recommending stocks with high dividend growth to protect portfolios and boost performance. Unlike growth names, dividend stocks typically don't offer dramatic price appreciation, but they do provide investors with a steady stream of income. This type of strategy can bode well for investors in a much riskier year ahead. "Given current market dynamics, we do believe price swings and bouts of volatility will become more frequent in the coming months, and will require further discipline and perspective from investors," Brian Belski, chief investment strategist at BMO, said in a note. "We are highlighting one of our most favored investment strategies, dividend growth, as one potential way to navigate the current and anticipated condition," he added. "Companies that are able to continue paying or even increase their dividends during challenging times are the epitome of high quality and stability." The stock market has suffered a sharp sell-off in the new year, led by tech shares, as investors dumped growth names in the face of higher bond yields. That's because rising interest rates reduce the value of high-growth companies' future cash flows. The tech-heavy Nasdaq Composite has lost about10% in 2022, dipping into correction territory. The S & P 500 has fallen roughly 6% during the same period. The Wall Street firm has a dividend-growth screen that consists of stocks with above-average and increasing payouts. Meanwhile, these stocks also have high credit ratings and quality rankings from the S & P. Morgan Stanley was one of the dividend-growth stocks highlighted by BMO. The bank on Wednesday posted better-than-expected fourth-quarter profits on strong equities trading revenue while the firm held the line on compensation costs. Target also offers attractive dividends, according to BMO. Earlier this week, Bank of America named Target a top pick for 2022 and said it should be a beneficiary of high food inflation. The bank also listed a slew of tech names including HP , Intel and Skyworks Solutions. To be clear, despite seeing short-term volatility, BMO is still bullish on the stock market for 2022 with its year-end target set at 5,300, one of the highest forecasts on Wall Street. "We remain confident in our bullish outlook for 2022 and have not seen any material changes in the fundamental backdrop of US equities to suggest there is significant trouble on the horizon," Belski said.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, January 18, 2022.
Brendan McDermid | Reuters
It's only January, but investors are already grappling with volatility, fears of higher interest rates and surging inflation. BMO Capital Markets is recommending stocks with high dividend growth to protect portfolios and boost performance.
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