This could this be the year for dividend stocks. Here are Wall Street's favorites
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This year could be a better one for dividend stocks. Companies paying dividends underperformed the market in 2023 as the highest yields in generations in the bond market had many investors seeking income, but away from stocks. The Vanguard Dividend Appreciation exchange-traded fund ended 2023 little changed, up just 0.3%, compared to the 24% return on the S & P 500 . This year, the Federal Reserve has said it’s likely to cut interest rates three times , which could bode well for dividend stocks . Investors may turn to the asset class in anticipation of falling bond yields, and pick up capital appreciation as well. “The pendulum is swinging, obviously with potential rate cuts [ahead],” Matt Powers, managing partner at Powers Advisory Group, said in a Dec. 27 interview on CNBC’s ” Halftime Report .” “Moving forward … it’s the time to start buying dividend stocks.” VIG 1Y mountain VIG one-year returns But investors should be selective in choosing the right names. With that in mind, CNBC Pro looked for dividend-paying stocks in the Vanguard Dividend Appreciation Index Fund ETF that Wall Street believes have room to move higher, so there is some potential stock appreciation along with the yield. They offer at least 15% upside, as reflected in analysts’ consensus price target. Each company has at least $1 billion in market capitalization and at least five analysts covering the stock, with at least 60% of those analysts rating it a buy. Trinity Industries , which provides railcars and services, has the highest dividend yield on the list, at 4.2%. Some 60% of the analysts covering the stock rate it a buy and it has nearly 17% upside to the average analyst price target, according to FactSet. TD Cowen named Trinity one of its best ideas for 2024 in a Dec. 8 note. “As supply chain, labor, and border challenges ease, TRN’s YTD choppy execution despite a backdrop of decidedly favorable supply dynamics should improve, leading to 14% 2024 production growth and accompanying operating leverage,” analyst Matt Elkott wrote. Shares of Trinity lost 10% in 2023. TRN 1Y mountain Trinity one-year performance MetLife is a top 2024 pick for JPMorgan. The insurance company has a 3.1% dividend yield and 16% upside to the average analyst price target. While JPMorgan remains cautious on the long-term fundamental outlook for the life insurance business, the firm is nonetheless bullish on the stock. “In our view, MET offers the best-risk-reward in the sector due to expected healthy fundamentals, steady buybacks, and a depressed valuation,” analyst Jimmy Bhullar wrote in a note Wednesday. Shares fell nearly 9% in 2023. Utilities are also known for their dividends and Essential Utilities is the only one in the sector that made the cut. The stock, which has a 3.3% dividend yield, has 26% upside to the average price target. Nearly 78% of the analysts who cover the name rate it a buy. Shares of Essential Utilities dropped nearly 22% last year. — CNBC’s Michael Bloom contributed reporting.
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