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The risk/reward for dividend stocks appears attractive, UBS analysts said in a research note Wednesday.
They explained that after beating the market by 10% in 2022, high dividend-yielding stocks have lost momentum year-to-date, underperforming by 3% “amid the sizeable factor rotations.”
However, UBS sees potential upside in the stocks. “Dividend growth should outpace earnings growth this year, and valuations are undemanding,” said analysts.
“According to our machine learning model, high dividend-yielding stocks have also undershot fundamentals by 3% over the last 3 months. The risk/reward for dividend stocks also appears attractive given they should be relative winners in a number of macro scenarios including recession, sticky inflation and tighter fin conditions.”
Analysts see high-quality dividend stocks as “particularly attractive” as they offer greater downside protection, have stronger pricing power, trade at a 15-20% valuation discount vs. the market, and “the payout ratio (45%) is 5ppts below average implying upside to dividend growth.”
