Retirees are about to shift money into equity income, boosting these stocks, says Bank of America

Published Mon, Feb 5 20242:19 PM ESTUpdated Mon, Feb 5 20242:44 PM EST

Jesse Pound @/in/jesse-pound @jesserpound

Falling interest rates could push retirees back into stocks in 2024, and that could be a big win for investors who buy into dividend payers early. Bank of America strategist Savita Subramanian said in a Feb. 2 note that some of the money that has shifted into money market funds during the Federal Reserve's rate hiking cycle could start to jump back into stocks now that rates appear to have peaked. Money market fund assets had $6 trillion as of Jan. 31, according to the Investment Company Institute . "Retirees have shifted assets to cash for income, but an easing cycle could drive them to equity income funds. Today, 80 of the S & P 500 companies (the Magnificent 80?) offer higher dividend yield over the next 3yrs than cash, assuming short rates peak here (capital appreciation would be 'gravy')," Subramanian's note said. Additionally, these dividend stocks could benefit from a market that broadens out after being led by a narrow group of mostly tech stocks over the past year, according to Bank of America. The so-called Magnificent 80 includes stocks from a broad variety of industries, such as KeyCorp , Dow Inc ., AT & T , Ford , Simon Property Group and Merck . These six stocks all have buy ratings from Bank of America and are projected to have dividend yields at least 1% above the cash yield over the next three years. AT & T has the highest current dividend yield of those six stocks, at more than 6%. The stock has also started off 2024 strong, with its share pricing rising more than 5%. On the other side is Merck, which has a current dividend yield of less than 3%. However, Bank of America projects big dividend hikes in the coming years, and the stock is already up 15% in 2024. Merck also announced a deal to acquire part of Elanco Animal Health's portfolio on Monday. MRK YTD mountain Shares of Merck are off to a hot start in 2024. The other four names have seen their stock prices fall this year and carry some sector-specific risks that could outweigh their healthy dividends. KeyCorp's stock has been hurt by persistent concern about regional banks, and Simon Property Group could struggle due to growing concerns about the commercial real estate market. Meanwhile, Ford and other legacy automakers have found tepid demand in their push into electric vehicles. Bank of America isn't alone in being bullish on Ford, however, as Morgan Stanley named the stock a top pick among automakers last week. It is unclear how much of the cash parked in money market funds will flow back into the stock market. Some investors may have been using those products instead of traditional savings accounts and would be unlikely to put that cash into equities.