Bank of America likes these high-quality financial stocks — and they pay a dividend
High-quality stocks with solid dividend yields are a good way to hedge against the recent market turbulence, according to Bank of America. Among those are financial stocks , which have been seesawing along with the rest of the market amid trade tensions and concerns about the economy. Stocks moved higher this week but are still down since President Donald Trump announced his new tariffs on April 2. Reciprocal tariffs are now paused as Trump holds negotiations, but his unilateral 10% levy remains intact. The financial sector also rose this week, with the Financial Select SPDR Fund gaining about 3%. The fund is essentially flat for the year, while the S & P 500 has dropped almost 7% year to date. Bank of America has an overweight rating on the sector. XLF YTD mountain Financial Select SPDR Fund While financials have experienced recent rockiness, many on Wall Street have said they expect the industry to benefit from the Trump presidency, largely due to looser regulations. Still, Bank of America expects the market volatility to continue due to increasing policy uncertainty. In addition, tariffs bring risks of inflation. "High quality is the best hedge against volatility in our view … and inflation-protected income will likely drive alpha," Savita Subramanian, the firm's equity and quant strategist, said in a note last week. "A traditional high quality dividend yield approach may be prudent." Among those stocks Subramanian focused on were financials in the Russell 3000 that pay dividends. From these names, she chose stocks that the bank rates high quality based largely on the growth and stability of earnings and dividends over a 10-year period. In addition, the return on equity for the companies was greater than that of the universe median and their indicated dividend yield, which is the annualized yield based on the most recently announced dividend, is greater than that of the index. Lastly, the ratio of the last 12-month earnings per share to indicated next 12-month dividend per share must be greater than 1.0. Here are five buy-rated names that made the cut. Morgan Stanley , which had a 3.29% dividend yield, as of Thursday's close, reported an earnings and revenue beat earlier this month for its first quarter. The investment bank said its stock trading revenue jumped 45% amid a more volatile trading environment. Still, CEO Ted Pick acknowledged on the earnings conference call that the outlook in this environment is "less predictable." "The stock, bond and currency markets are exhibiting the kind of overnight and intraday volatility that reflect rapidly changing probability assessments of different policy outcomes," he said. "Given this unpredictability, some clients are deferring strategic activity, while others are proceeding." Shares have lost 8% year to date. JPMorgan also had a solid quarter , with its revenue of $46.01 billion topping the $44.11 billion consensus estimate, according to LSEG. The bank also saw its trading revenue surge. In addition, CEO Jamie Dimon said JPMorgan bought back $7 billion of common stock and announced a 12% dividend increase. The stock yields 2.32%, as of Thursday. While he touted the company's strong results in a statement, he also said the firm is prepared for a wide range of scenarios resulting from tariffs, sticky inflation, high fiscal deficits and market volatility. "Our fortress balance sheet enables the Firm to be a pillar of strength, particularly during volatile or challenging times," Dimon said. Shares of JPMorgan have gained 2% so far this year. Meanwhile, BlackRock posted mixed results earlier this month for its first quarter. Its revenue of $5.28 billion missed the LSEG consensus estimate of $5.34 billion, but its adjusted earnings per share of $11.30 beat the $10.14 per share expected by analysts. BLK YTD mountain BlackRock BlackRock CEO Larry Fink said in a statement announcing the results that the firm's positioning and connectivity with clients are "stronger than ever." He also acknowledged that anxiety and uncertainty about the future are dominating conversations with clients. "We've seen periods like this before when there were large, structural shifts in policy and markets – like the financial crisis, COVID, and surging inflation in 2022," he wrote. "We always stayed connected with clients, and some of BlackRock's biggest leaps in growth followed." The stock, which yields 2.33%, is down nearly 11% year to date. Lastly, two regional banks also made the list. Fifth Third Bancorp has a 4.22% dividend yield and is down about 15% year to date. East West Bancorp yields 2.84% and has lost about 10% so far this year. Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today's dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles and Dan Ives , with a special edition of Pro Talks with Tom Lee. You'll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!
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