Wall Street says you should buy dividend-paying stocks with $6 trillion of cash ready to be deployed

• Dividend stocks are expected to rise as investors deploy $6 trillion from money market funds, Bank of America says.

• Investors could be investing their money as the Fed prepares to cut rates in September.

• BMO agrees and recommends high-yield stocks including Abbvie, Chevron and Gilead Sciences.

Dividend-paying stocks are poised for a big rise in the second half of the year as investors get involved the $6 trillion held in money market funds, according to Bank of America.

Strategist Savita Subramanian called the dividend trade a “pain trade,” meaning the majority of investors are not well positioned for the potential upside in dividend-paying stocks.

“There is more than $6 trillion in US money market funds as the Fed looks set to cut rates,” Subramanian said in a note this week. “Bond funds have seen record flows since the start of the year, but we see more opportunity within equities for investors looking for yield.”

There are more than 200 S&P500 shares that, according to the memorandum, offer a higher real return potential than the 2% offered by the interest on ten-year government bonds, and approximately 75% of these shares are under-owned by professional investors.

Some of the highest-yielding S&P 500 companies include Walgreens Boot Alliance, Altria, Verizon, FordAnd AT&T. And while the S&P 500 as a whole offers a dividend yield of about 1.25%, there are nearly 300 S&P 500 stocks that offer a higher yield.

“Overall, we expect dividends to represent a larger share of returns than the outsized share price returns and multiple expansions of the past decade,” Subramanian said.

BMO’s Brian Belski is another Wall Street strategist who expects big gains from dividend-paying stocks, especially after their lackluster performance since the stock market bottomed in October 2022.

“We believe these stocks have turned the corner and recent relative strength is likely to continue in the coming months,” Belski said in a note Tuesday. “With the Fed now likely to cut rates sooner than previously expected, the likely decline in long-term rates in response should provide a boost.”

Some of Belski’s recommended high-paying dividend stocks include Abvie, Chevron, Duke Energy, Gilead SciencesAnd Pfizer.

As investors hunt for yield at a time when interest rates are about to fall, dividend-paying stocks could be the under-loved part of the stock market that is about to boom.

The Fed is expected to implement the first interest rate cut of the current cycle during the September FOMC meeting.

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