BMO suggests that dividend growth stocks offer a solid way to shield portfolios during turbulent times while also enhancing performance. Although the stock market has shown gains this year, they haven’t been without some ups and downs. Despite this, BMO remains optimistic about the stock market’s outlook for 2025, with Chief Investment Strategist Brian Belski conveying confidence in a recent note. However, he acknowledged that with the current market environment, we can expect more frequent price fluctuations and volatility in the coming months. This will demand more discipline and careful consideration from investors.
To navigate these choppy waters, Belski advocates for dividend growth stocks, which he considers a reliable long-term strategy. These stocks blend the qualities of growth and yield, often belonging to companies with a robust track record of consistent earnings and cash flow. Over time, these traits generally earn favor with investors. Historically, the dividend growth strategy has shown resilience, outperforming during both volatile phases and strong market conditions. For example, since 1990, during one-year periods where the S&P 500 gained 10% or more, dividend growth stocks outpaced the broader market by an average of 4.4 percentage points.
BMO’s analysis also indicates that their dividend growth strategy has historically exceeded market performance in rising interest rate environments. Although the 10-year Treasury yield dipped on Tuesday, it has seen a steady upward trend since last fall. The companies selected under BMO’s strategy have maintained their dividends over the past five years without any cuts, boast a dividend yield surpassing that of the S&P 500, and display a one-year dividend-per-share growth exceeding that of the index. Moreover, their dividend payout ratio is lower, and each company shows a free cash flow yield greater than the dividend yield.
Several companies have made it onto BMO’s list, all of which are rated as outperformers by the firm. Among the standouts are energy players Hess and Marathon Petroleum. The dividend yields for these stocks are 1.3% and 2.4%, respectively. Over the past year, Hess has seen an 8% increase, while Marathon has experienced a slight decline of nearly 2%. Hess is progressing toward a $53 billion acquisition by Chevron. The deal has received approval from the Federal Trade Commission, but a remaining dispute with Exxon Mobil needs resolution before finalization, with arbitration scheduled for May.
In addition to benefiting from the energy sector’s growth, there’s anticipation that the Trump administration’s policies, which prioritize expanding oil and gas drilling, will bolster financial stocks—especially banks, due to deregulation plans. Insurance companies, including Cincinnati Financial and Everest Group, also form part of BMO’s recommended strategy. Cincinnati Financial offers a 2.3% dividend yield and has seen its shares rise by 25% over the past year, while Everest yields 2.2% and has witnessed a nearly 3% decline.
