U.S. stocks fell into bear market territory last month — and the wild swings since have made it hard to predict where the market is going next. The S & P 500 logged its worst performance in 50 years during the first half of this year, as it tumbled nearly 20%, and the Nasdaq is down nearly 30% from its high this year – well into bear market territory. Stocks staged a comeback on Tuesday after the July 4 holiday, but worries about a potential recession continue to plague markets. Given this environment, one strategy that has been flagged by a number of strategists is buying into so-called dividend growers — companies with a strong track record of increasing the amount of cash they return to shareholders. ‘Dividend aristocrats’ Citi doesn’t expect corporate profits to make gains of “any magnitude” this year and next, especially given their surge in 2021. “This leads us to invest in the most durable demand industries, and particularly in the shares of firms with the most consistent track record of dividend growth,” the bank said, terming them “high quality dividend growers.” Read more Wall Street banks name their top global stocks for the second half — and give three over 70% upside Want to know where to invest for the next 10 years? Here’s what the pros suggest Recession playbook: Here are some of Wall street’s top stock picks for a downturn Such firms need to “over-earn” their dividends to sustain higher payouts, it said. “This points us to so-called ‘dividend aristocrats,’ firms with the strongest track record of growing dividends. These shares have solidly outperformed this year already.” Combining such dividend growth shares with bonds, as well as tax-efficient investing strategies for beaten-down stocks and bonds “offers a lower-risk approach for today’s uncertainties,” said Citi. Stock picks Wolfe Research — which says its base case in the intermediate term is bearish — screened for defensive dividend stocks with yields of more than 3%, low debt, and low payout ratios. A payout ratio refers to the proportion of earnings a company pays its shareholders in the form of dividends; a low ratio suggests the firm is re-investing most of its earnings into its operations. Wolfe Research’s screen of U.S. stocks turned up names across sectors including energy, tech, healthcare and consumer. Stocks such as Pfizer , Coca-Cola , Exxon Mobil , Cisco and IBM made the cut. Barclays also ran a screen of overweight-rated U.S. stocks with a three-year average dividend yield of more than 3%, and yields which are expected to grow or remain stable through 2023. A raft of consumer, energy, financial and tech stocks turned up, including Energizer Holdings , Fidelity National Financial and Cisco . Sustainable yield Nicholas Ferres, chief investment officer at Vantage Point Asset Management, stressed the importance of a sustainable dividend yield. “So when we screen for companies with decent dividend yields, we also look at balance sheet strength, and we look at free cash flow,” he told “Squawk Box Asia” on Monday. Free cash flow is cash generated by a business after accounting for operating and capital expenditure. The asset manager screened for global stocks with 5.4% dividend yield, price-to-earnings ratio below 10x, and low debt ratios. The stocks that turned up included insurer AIA , National Australia Bank , Taiwan tech firm Advantech , and Chinese Covid vaccine maker Sinopharm .
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