We recently compiled a list of the 13 Best Dividend Stocks to Buy Under $50.In this article, we are going to take a look at where Bank of America Corporation (NYSE:BAC) stands against the other dividend stocks.
AI stocks are stealing the spotlight today as the appetite for these services continues to gain traction globally. This surge in interest has temporarily diverted investor attention from dividend-paying equities. This year, dividend stocks have once again lagged behind the market, a trend highlighted by Dan Lefkovitz, a strategist at Morningstar Indexes, during a recent interview with the firm. Here are some commeants from the analyst:
“I just want to mention two interesting observations. One, interest rates have come down this year, yet dividend-paying stocks have underperformed. There’s this conventional wisdom that we’ve talked about in the past that falling rates are good for dividend payers and rising rates are bad for dividend payers, yet dividend stocks have underperformed in a falling rate environment. Second, outside of the US, dividend stocks are a little bit ahead of the broad market. We can table those, but I just thought they’re interesting to note.”
That said, analysts predict this trend won't persist, as dividend stocks are expected to regain their strength and prominence soon. Bank of America analyst Ohsung Kwon suggested that a dividend revival might be on the horizon. His team anticipates a 10% increase in overall dividends from the companies in the broader market in 2025, driven by investors' growing preference for cash. Highlighting this trend, major tech firms began paying dividends for the first time this year. According to Janus Henderson, these tech giants accounted for roughly 25% of the total underlying dividend growth in the US during the third quarter.
When it comes to dividend stocks, analysts consistently recommend prioritizing dividend growth over chasing high yields. Dan Lefkovitz, a strategist with Morningstar's Index team, emphasized this approach, pointing out that dividend growth is a completely different ball game compared to high-dividend investing. He explained that dividend growth signals a company's strong competitive position and improving prospects. A dividend-growth portfolio typically mirrors the market more closely in terms of sector exposure and growth-versus-value traits, including metrics like price-to-earnings ratios. While it maintains a value bias, it leans more toward the core market than a high-dividend portfolio.
Over the years, companies with a track record of steadily increasing their dividends have generally outperformed non-dividend-paying firms while experiencing lower volatility. Although dividends are not set in stone and can vary, as seen in the current climate, they have significantly contributed to overall equity returns over time. Between 1930 and 2023, dividends and their reinvestment made up 40% of the annualized total returns in the broader market, with the rest driven by capital gains.
Maintaining steady dividend growth is a demanding goal, as it necessitates exceptional financial stability. For businesses still in their growth phase with relatively lower stock prices, assessing the sustainability of their dividends becomes an essential and simple factor to analyze. This article explores some of the top dividend stocks currently priced under $50.
Our Methodology:
For this list, we used a Finviz stock screener to find dividend stocks trading below $50 as of the close of December 20. From the initial list, we narrowed down the selection to companies that pay regular dividends to shareholders and possess strong dividend policies, ensuring consistent future dividends. From the resultant list, we picked 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s Q3 2024 database of 900 hedge funds and their holdings. These stocks are ranked in ascending order of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Is Bank of America Corp. (BAC) Cheap NYSE Stock To Invest In Now?
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Share Price as of the Close of December 20: $44.17
Bank of America Corporation (NYSE:BAC) is a North Carolina-based financial services company and an investment bank. Recent interest rate hikes have had mixed effects on the bank. On the positive side, net interest income rose to $56.9 billion, a 33% increase over the two years ending in 2023. However, the bank has also faced a significant rise in unrealized losses in its loan portfolio, which grew from $14 billion in 2021 to $102 billion last year.
This was also highlighted by Diamond Hill Capital in its Q2 2024 investor letter. Here is what the firm has to say:
“Other top contributors in Q2 included Bank of America Corporation (NYSE:BAC) and Extra Space Storage. Shares of financial services company Bank of America rose in the quarter as it looks increasingly likely net interest income will inflect and begin growing again in 2024’s back half and into 2025.”
Bank of America Corporation (NYSE:BAC) enjoys strong competitive advantages that reinforce its position in the industry, protecting it from both traditional competitors and emerging fintech companies. Its extensive distribution network, combining a robust digital presence with a wide-reaching branch system, enables the bank to expand its low-cost deposit base and attract new customers, generating additional revenue opportunities. In addition, the bank's large scale allows it to effectively manage its costs, ensuring consistent profitability. The strength of the company brand also appeals to both existing and potential customers. The stock has surged by nearly 31% in 2024 so far.
Bank of America Corporation (NYSE:BAC) is one of the best dividend stocks on our list as the company has never missed a dividend in 26 years. Currently, it pays a quarterly dividend of $0.26 per share and has a dividend yield of 2.34%, as of December 23. Warren Buffett's Berkshire Hathaway was the company's leading stakeholder in Q3.
Overall BAC ranks 1st on our list of the best dividend stocks to buy under $5. While we acknowledge the potential of BAC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BAC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
