The U.S. economy is flashing a sign that’s favorable for dividend stocks, according to Bank of America. In March, the firm’s U.S. Regime Indicator — an economic metric — showed the largest increase since July 2021, after it moved into a recovery phase in February, equity and quant strategist Savita Subramanian wrote in a note Wednesday. In this environment, investors want to own dividend stocks with above-market yields, she said. “High Div Yield has led 88% of the time during prior Recoveries. This factor remains inexpensive and neglected as well … and could be a beneficiary of income investors’ flows if the Fed begins to cut rates,” Subramanian said. When it comes to selecting names, look for companies that pay out above-market yields that are secure, not stretched, Subramanian wrote in her note. For those characteristics, she looks to quintile two of the Russell 1000 by trailing dividend yield. This includes the second-highest tranche of dividend yielders in the index. Her screen guards against owning distressed companies that might move into the first quintile, the highest dividend yield group, if prices fall ahead of potential dividend cuts. Here are some of the names on Bank of America’s list for April. AES and Sempra are two utility names that made the cut, yielding 4% and 3.4%, respectively. In general, utilities are known for their predictable dividends. While they have lagged the overall market this year, there have been some gains in recent months. The Utilities Select Sector SPDR Fund (XLU) has gained 5% so far this year, and it’s up by 4.9% in the past month. In late February, Sempra CEO Jeffrey Martin told CNBC’s Jim Cramer that the company increased its capital plan to $48 billion to fund initiatives, such as grid modernization. “A $48 billion record capital plan really lays out a roadmap for our future growth and should support rate-based growth at our utilities at between 9% and 10%,” he said on ” Mad Money .” Shares of Sempra are down roughly 4% so far this year, while AES has shed nearly 10%. Several energy names are also on the list, including APA and HF Sinclair . APA has a 3.1% dividend yield, while HF Sinclair yields 3.5%. In January, APA announced a deal to acquire Callon Petroleum in a $4.5 billion all-stock transaction . The deal adds to APA’s “backbone” in the U.S.’s Permian Basin, APA CEO John Christmann said in an interview with CNBC in February. Shares of APA have lost nearly 10% year to date, while HF Sinclair is up about 3% in the period. Lastly, Citigroup was among the financial names highlighted by Bank of America. Citi posted a first-quarter revenue beat earlier this month, in part due to better-than-expected results in its investment banking and trading divisions. Shares are up 22% so far this year.
