Investing

Hedge Funds Favor Bank of America and 4 More Dividend Winners as Rates Soar

Lee Jackson

Published: October 25, 2023 6:55 am

One question always surfaces when rates go as high as they are now (which are the highest for the 30-year long bond and mortgage rates in over 20 years). That question is which stocks can do well in this environment. Predictably, financial and consumer staples are mentioned, especially dividend stocks. That is because banks and brokerage firms typically see their net interest income rise when rates rise. And consumer staples never really lose the demand factor, one of the built-in safety nets the sector has.

The Insider Monkey Hedge Fund database indicates that some of the biggest hedge funds in the world are snapping up some of the safest stocks around. With the potential for rates to continue higher, worried investors should consider moving from high price-to-earnings momentum stocks to safer dividend-paying stocks. These can provide the proverbial “safe space.”

We cross-referenced the published data with our 24/7 Wall St, research database and found five stocks that are Buy-rated and pay solid and dependable dividends. It is important to remember that no single analyst report should be used as the sole basis for any buying or selling decision.

Bank of America

The company posted very solid results last week. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States. It provides various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.

Bank of America has expanded into several new U.S. markets. Its scale across the country positions it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains. (See how megabanks have fared since the financial crisis.)

Note that Warren Buffett owns a stunning 1 billion shares of this bank.

Shareholders receive a 3.75% dividend. Oppenheimer has a $49 target price on Bank of America stock. That is well above the $32.07 consensus target and Tuesday’s closing share price of $25.47.

Colgate-Palmolive

This top dividend payer is a very safe play for investors. Colgate-Palmolive Co. (NYSE: CL) manufactures and sells consumer products worldwide. The company operates through two segments.

The Oral, Personal and Home Care segment offers toothpaste, toothbrushes, mouthwash, bar and liquid hand soaps, shower gels, shampoos, conditioners, deodorants and antiperspirants, skin health products, dishwashing detergents, fabric conditioners, household cleaners and other related items. It markets and sells its products under various brands, including Colgate, Darlie, Sorriso, Tom’s of Maine, Irish Spring, Palmolive, Softsoap, Lady Speed Stick, Speed Stick, EltaMD, Filorga, Ajax, Axion, Fabuloso, Murphy, Suavitel, Soupline and Cuddly, to a range of traditional and e-commerce retailers, wholesalers and distributors. It also includes pharmaceutical products for dentists and other oral health professionals.

The Pet Nutrition segment offers pet nutrition products for everyday nutritional needs under the Hill’s Science Diet brand, as well as a range of therapeutic products to manage disease conditions in dogs and cats under the Hill’s Prescription Diet brand. This segment markets and sells its products through pet supply retailers, veterinarians and e-commerce retailers.

Investors receive a 2.67% dividend. Citigroup has set its price target at $85. Colgate-Palmolive stock has a $81.35 consensus target, and shares closed on Tuesday at $72.84.

PepsiCo

This is a top consumer staples company that will be supplying the goods for football tailgates and parties, and it posted very solid results last week. PepsiCo Inc. (NYSE: PEP) operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay’s and Ruffles potato chips; Doritos, Tostitos and Santitas tortilla chips; and Cheetos cheese-flavored snacks, branded dips and Fritos corn chips.

The Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, natural granola and oat squares, as well as Pearl Milling mixes and syrups, Quaker Chewy granola bars, Cap’n Crunch cereal, Life cereal and Rice-A-Roni side dishes.

Its North America Beverages segment offers beverage concentrates, fountain syrups and finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Tropicana Pure Premium, Sierra Mist and Mug brands, as well as ready-to-drink tea and coffee, and juices.

PepsiCo stock comes with a 3.02% dividend. J.P. Morgan’s $185 price target is well above the consensus target of $177.98 and Tuesday’s close at $162.19.

Philip Morris

This company has continued to grow global market share and its stock makes good sense for total return investors now. Philip Morris International Inc. (NYSE: PM) is one of the largest international cigarette producers, with a share of 28% of the international cigarette/heated tobacco market. Key combustible brands include Parliament, L&M and Marlboro, one of the most valuable brands in the world.

Philip Morris is commercializing IQOS, a heat-not-burn product, in over 40 markets, which could drive earnings in the years to come. Most on Wall Street believe the company offers superior underlying growth prospects, both near term and long term. The share price has been weak of late as investors have questioned the growth potential of its reduced-risk products, and the overall market weakness has contributed. All of its sales are outside of the United States.

The dividend yield here is 5.72%. The $112 UBS price objective compares with a consensus target of $111.50. On Tuesday, Philip Morris International stock closed well below both levels at $90.83.

Visa

This top credit card issuer is becoming a huge leader in digital pay. Visa Inc. (NYSE: V) operates as a payments technology company worldwide. It offers credit, debit and prepaid card products, as well as tap to pay, tokenization and click to pay. It provides its services under the Visa, Visa Electron, Interlink, VPAY and PLUS brands. (These 19 companies were caught manipulating the American free market.)

The company’s offerings include the following:

• VisaNet is a transaction processing network that enables authorization, clearing and settlement of payment transactions.
• Visa Direct is a real-time payments network.
• Visa B2B Connect is a multilateral B2B cross-border payments network.
• Visa Treasury as a Service is a cross-border consumer payments business.
• Visa DPS provides a range of value-added services, including fraud mitigation, dispute management, data analytics, campaign management, a suite of digital solutions and contact center services.
• Cybersource is a payment management platform.
• Its risk and identity solutions include Visa Advanced Authorization, Visa Secure, Visa Advanced Identity Score and Visa Consumer Authentication Service.
• Visa Consulting and Analytics offers payments consulting advisory services.

Shareholders receive just a 0.78% dividend. Visa stock has a $293 target price at J.P. Morgan. The consensus target of $260.57 is nearer to Tuesday’s $234.65 per share close.

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Why Dividend Aristocrats Like AbbVie May Be the Best Contrarian Ideas Now

None of these top companies will help you cash in on artificial intelligence. Yet, these five dividend stocks will help protect you as interest rates go higher. While the bond market is now doing the job the Federal Reserve has tried to do for the past 18 months as sellers push rates higher, it makes sense to move capital to a safer spot until the increase in rates slows or ends. It could easily be this time next year before rates start to come back down.