Selecting High-Yield Dividends for Changing Markets News ad

The concept of market relativity is more alive than ever in today’s economy, as gone are the days of individualistic price behavior across asset classes and even stocks. Thanks to advances in data delivery and technology, financial sector traders have found ways to connect the dots in virtually every market, and that’s the only thing these big hedge funds and investment bank traders understand.

According to the theory of relativity, investors can focus on changing preferences between different markets, especially when taking into account what is considered the next best thing. For example, the 10-year U.S. Treasury yield is generally considered the “risk-free” rate, the benchmark against which all other returns and potential risks are considered.

That’s why, as the likelihood of another bond rally looms larger, investors should prepare for the rotation that is likely to follow. Specifically, a return to dividend stocks as bond yields become less attractive next to those stocks. Names like Schwab US Dividend Stock ETF NYSEARCA: SCHD, Exxon Mobil Company. New York Stock Exchange: gold as one of the leaders in the energy sector and even Whirlpool Company New York Stock Exchange: WHR.

A Diversified Way to Play Dividend Stocks

Some investors find that owning individual stocks can be a headache due to their capital requirements and risk tolerance. This strategy involves tracking individual company developments, earnings, price movements and everything else that management of a concentrated portfolio entails.

Here’s why the Schwab US Dividend Equity ETF could be an attractive proposition. It is quite well diversified across various sectors and industries, giving investors a relatively smoother investment path. Investors can see that this ETF has been trading slightly lower as bond yields have been rising recently.

The price action, which saw the ETF fall nearly 10% from its 52-week high, occurred because its dividend yield failed to justify the additional risk of equities when bonds began offering 4.6% again. However, the $2.56 per share payout has pushed the yield to a much higher 9.3% today, which is starting to attract the attention of new buyers.

As of November 2024, the folks at MML Investor Services decided to increase their holdings in this dividend ETF by as much as 5.9%, bringing their net position to a high of $145.6 million today. However, these were not the only buyers for the month; High Tower Advisors increased its shares by 0.4% and also reached $138.5 million.

Risk-reward profile favors oil stocks

There’s a reason Warren Buffett decided to buy up to 29% of the stock Occidental Petroleum Co. (NYSE OXY): He understands that the growth potential of the energy sector is unparalleled. Even hedge funds have begun buying oil futures to bolster their holdings in case prices rise from current cyclical lows.

However, not all oil stocks are created equal. Exxon Mobil stock has an inherent advantage: It has a lower beta, meaning it is less volatile and therefore more attractive during the transition from a lower bond yield to the next best stock.

This lower beta exposure, combined with Exxon’s $3.96 per share payout, will make the stock’s 3.7% dividend yield today an attractive proposition when bond rotation hits the market. This is especially true as investors realize that it’s not just about low volatility and return potential, but also growth potential.

Wall Street analysts, especially those at UBS, were ready to issue bullish forecasts for Exxon Mobil stock. As of December 2024, they view Exxon Mobil as a buy and value it at $147 per share, implying upside to 38% from the current price.

Whirlpool discount won’t last long

When the mortgage market index fell to its 1996 low, it was followed by adverse events in the real estate sector, indicating a decline in housing demand and activity. That’s why investors today may see Whirlpool stock trading at a discount to the rest of the consumer discretionary sector.

With a price-to-book (P/B) ratio of just 2.5x, Whirlpool shares are well below the sector average of 5.6x today. This discount, along with its 6.1% dividend payout, makes Whirlpool stock a potential buy for investors looking to successfully transition out of bonds and into more attractive income-producing assets with some additional upside potential.

This theme is reflected in recent institutional buying of Whirlpool shares led by Charles Schwab, which rose 14.7% as of November 2024, giving them a net position of $216.1 million or 3.6% ownership in the company . If a stock is cheap enough for the bank that manages this dividend ETF, then it’s probably cheap enough for investors today.

Before you consider Exxon Mobil, you should hear this.

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