UBS says seek income as market upside is over and names 10 attractive dividend payers

Published Fri, Feb 3 20232:34 PM ESTUpdated Fri, Feb 3 20232:35 PM EST

Calling the early 2023 stock market rally largely over, UBS Global Wealth Management has its eye on stocks with higher dividend yields. Strategist David Lefkowitz said U.S. stocks gained due to improved economic growth in Europe and China as well as dimming concern over further interest rate hikes from the Federal Reserve. The S & P 500 is up about 8.1% since 2023 began. But Lefkowitz said U.S. equities were now the firm's "least preferred" investing tactic and sees little upside given the S & P 500 's high forward price-to-earnings multiple. He said further upside will likely only come from indications of a reacceleration in corporate profit growth, but cautioned that probably won't happen until the Fed begins cutting interest rates. "Overall, we think the initial rally since the start of the year will be unsustainable," he said in a note to clients Wednesday. With this in mind, Lefkowitz created a list of stocks with dividend yields above the S & P 500's 1.7%. Here's 10 that made the list: AT & T made the list with a dividend yield of 5.5%. UBS has a buy rating on the telecommunications stock with a price target of $24, implying 10.7% upside over Thursday's close. Analyst John Hodulik said in a Jan. 26 note that wireless momentum should grow with favorable comparisons in the first quarter. Meanwhile, he said AT & T is supporting consumer growth through cost-saving initiatives, leaving 2023 free cash flow in line with analyst expectations. Truist has a 4.3% dividend yield. Also rated a buy, UBS raised its price target by $2 in January to $56. The bank's new target implies an 11% from Thursday's close. Analyst Erika Najarian told clients in a Jan. 19 note that the Charlotte, N.C.-based bank reported "solid" fourth-quarter results. Truist said to expect stable net interest income for the year, which contrasts with other financial companies expecting weaker NII, she said. As a result, UBS raised its price target as well as its 2023 and 2024 estimates. American Electric Power , meanwhile, has a 3.6% dividend yield. UBS has a buy rating and a $113 price target, meaning the utility could rally 19.5% from Thursday's close. Algonquin Power & Utilities said Jan. 12 it was still planning to acquire Kentucky Power from American Electric. In a call, management said the 18-month window for the deal to close has not been extended, meaning it's still scheduled to close by late April. — CNBC's Michael Bloom contributed to this report