Dividend stock demand 'should remain elevated' - BofA

© Reuters. Dividend stock demand 'should remain elevated' - BofA

By Sam Boughedda

In a note to clients Thursday, BofA analysts said value won in 2022, and investors should "stick with it."

"While Value factors (+5.1% on avg.) trailed Growth factors (+6.0% on avg.) in Nov., Value remains ahead of Growth so far in 2022 (-3.7% vs -4.0%, respectively)," the analysts wrote.

The analysts explained that 2022 was "marked by broad market leadership," with 73% of the almost 50 quantitative factors BofA followed outperforming the equal-weighted S&P 500. In addition, all value factors they follow except the high EPS yield led the index.

"We see multiple reasons to stick with Value: 1) Growth remains stretched vs Value on most valuations metrics vs. history, 2) Value remains deeply underweight by active managers (Exhibit 39), 3) During high inflation periods Value led Growth 3-mth prior to Downturn (more below) and up to 12-mth after, 4) During high inflation periods Value led Growth for 12mos after the Fed stopped hiking, 5) Value fared well during periods of heightened rates volatility," they added.

They also believe it is important to remain selective; demand for dividend stocks will remain elevated; and "duration will likely remain under pressure."

"Dividend Yield was the third best factor overall YTD with a 17.1ppt lead over the index, its second best outperformance margin for the Jan – Nov period since 1987. Dividends' contribution to total returns lagged over the last decade, but returning to historical norms would imply that >50% of total returns will be from income vs. 14% today," the analysts continued. "Demand for dividend-paying stocks should remain elevated, especially given low valuations and low institutional ownership."