BMO expects more market volatility. These dividend payers can cushion the ride

Published Wed, Oct 4 202312:56 PM EDTUpdated Wed, Oct 4 20232:16 PM EDT

Investors looking for safety amid the market turbulence can find it in certain dividend stocks, according to BMO Capital Markets. In fact, BMO is expecting increased bouts of volatility in the coming months. While the major averages were modestly higher Wednesday, stocks sank on Tuesday as the 10-year Treasury yield hit a 16-year high . "One of the benefits of a dividend-focused investment strategy, such as our Dividend MFR [Dividend Multi-Factor Rank] model, is its ability to combat high levels of volatility and protect against market losses," Brian Belski, chief investment strategist at BMO, wrote in a note last week. The firm's MFR strategy screens the S & P 500 dividend universe on the second trading day of each month based on the prior month-end values for several factors, including the sum of the annual dividend per share growth in each of the past five fiscal years and free cash flow yield minus the dividend yield. BMO's analysis shows that the model outperformed the overall market during periods of S & P 500 losses, as well as during times of market strength, he said. In addition, while traditional dividend strategies may struggle in a high interest rate environment, the MFR strategy performs well during such times, Belski said. Here are some of the names in BMO's strategy. Pioneer Natural Resources has a whopping 7.6% dividend yield. The energy stock is down nearly 6% so far this year, but has moved higher in the past three months along with the price of oil. Last week, U.S. West Texas Intermediate crude futures reached their highest level in more than a year before shedding some of those gains. Investors can also get an attractive dividend in Starbucks , which yields 2.5%. The coffee giant reported fiscal third-quarter same-store sales that missed estimates in August, but it beat on earnings. In September, former CEO Howard Schultz said he was stepping down from Starbucks' board . Starbucks shares have shed more than 8% year to date. Meanwhile, Eli Lilly has a 0.9% dividend yield. The stock has soared 45% so far this year, thanks to the blockbuster success of its diabetes drug, Mounjaro . On Tuesday, the pharmaceutical company said it was buying Point Biopharma Global for $1.4 billion for its experimental cancer therapies. Lastly, tech giant Microsoft made the cut with its 0.9% dividend yield. Excitement over the company's artificial intelligence initiatives has propelled its shares 32% higher year to date. Microsoft emerged as an early leader in AI when it announced a multibillion-dollar investment in ChatGPT-maker OpenAI. The company has since announced other initiatives, including a new AI subscription service , Microsoft 365 Copilot. — CNBC's Michael Bloom contributed reporting.