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Bank of America’s View: High-Quality Dividends as a Hedge Against Market Shocks

According to Bank of America, high-quality dividend stocks in the financial sector are among the best ways to brace for market turbulence.

Financials have been trading up and down amid trade tensions and economic worries. Stocks have risen this week but remain lower since President Trump’s April 2 tariff announcement. Although reciprocal tariffs have been paused, unilateral 10% tariffs remain in effect.

The Financial sector rose by 3% this week. The Financial Select SPDR Fund is roughly flat year-to-date, while the S&P 500 has declined 7%. Bank of America has maintained an Overweight rating on the sector.

Although financials have shown some instability, Wall Street largely expects them to benefit from regulatory rollbacks under Trump. Nonetheless, Bank of America warns that policy uncertainty and tariffs could fuel ongoing market volatility and inflation risks.

"High quality is the best hedge against volatility... and income protection from inflation is where alpha will be generated," said Savita Subramanian.
"A traditional high-quality dividend approach is warranted," she added.

Subramanian focused on financial stocks within the Russell 3000 that pay dividends, selecting companies based on profitability, dividend growth, and stability over a 10-year period. Selected firms had median or higher ROEs, higher dividend yields than the index, and a payout ratio (EPS to forward DPS) above 1.0.

Here are five highlighted picks:

• Morgan Stanley (3.29% yield):
  Surpassed earnings and revenue estimates in Q1. Stock trading revenue surged by 45%.
  CEO Ted Pick noted that the outlook is "less predictable." Shares are down 8% YTD.

• JPMorgan (2.32% yield):
  Delivered a strong quarter, with a surge in trading revenue.
  CEO Jamie Dimon announced a $7 billion share buyback and a 12% dividend hike.
  The company is preparing for a range of scenarios, including tariffs and inflation. Stock is up 2% YTD.

• BlackRock (2.33% yield):
  Reported mixed Q1 results.
  CEO Larry Fink stated that BlackRock’s positioning is "stronger than ever," citing resilience through past crises like the financial crash, COVID, and inflation waves.
  Shares are down 11% YTD.

• Fifth Third Bancorp (4.22% yield):
  Shares have fallen 15% YTD despite an attractive yield.

• East West Bancorp (2.84% yield):
  Shares have declined 10% YTD.

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