How can I stop the pain and make money in this nightmarish market? BofA says this is the ‘best hope’ for bulls in 2022
The market remains largely in panic.
The S&P 500 is down 19% in 2022. The Nasdaq is down a whopping 27%. And even the Dow Jones — made up of the 30 most prominent publicly traded companies — is in correction territory.
According to Bank of America, there is one thing that could save the stock market in 2022: money that companies can return to shareholders.
“The best hope for 2022 bulls lies in investors’ ability to dislodge the $7.1 trillion in useless US corporate cash,” the bank wrote in a note to investors.
Bank of America forecasts that stock repurchases and dividends in the US – currently at their 12-year low – are likely to rise.
“We expect companies to come under pressure to compete for shareholders by increasing dividends and buybacks due to low earnings growth, declining productivity, and diminishing prospects for profitable [capital expenditures]†
Bank of America proposes ETFs focusing on dividends, redemptions, and free cash flow to take advantage of a potential payout increase.
Vanguard High Dividend Yield ETF (VYM)
Many companies pay dividends, but some are more generous than others.
If you want to invest in a portfolio of companies characterized by large payouts, consider the Vanguard High Dividend Yield ETF.
The fund follows a passive, full replication approach to track the performance of the FTSE High Dividend Yield Index. It owns 443 stocks, so it is well diversified.
The ETF’s top positions include household names like Johnson & Johnson (JNJ) and Procter & Gamble (PG) — companies that have been paying increasing dividends for decades.
VYM also has a very low expense ratio of 0.06%.
iShares US Dividend and Redemption ETF (DIVB)
Paying dividends isn’t the only way to return money to investors. Companies can also buy back their shares. When a company buys back its shares, it reduces the number of outstanding shares, allowing each remaining investor to own a larger share.
If you want to follow the buyback theme, check out the iShares US Dividend and Buyback ETF.
The fund tracks the Morningstar US Dividend and Buyback Index, which consists of companies with a history of dividends and share buybacks. The expense ratio is 0.25%.
The DIVB currently has 319 shares, with the three largest interests being Apple (AAPL), Microsoft (MSFT), and Meta Platforms (FB). In 2021, Apple spent $88.3 billion in buybacks, Microsoft spent $29.2 billion, and Meta bought back $50.1 billion in its shares.
Pacer US Cash Cows 100 ETF (COWZ)
Free cash flow represents the money a company generates after all costs — including capital expenditures — have been paid. If a company generates a lot of free cash flow, it is usually in a good position to return money to investors.
Therefore, the Pacer US Cash Cows 100 ETF is a potentially suitable opportunity.
The fund is based on the Pacer US Cash Cows 100 Index, which screens the Russell 1000 Index to identify 100 companies with the highest free cash flow returns. Currently, the top three positions are Valero Energy (VLO), Dow (DOW), and Occidental Petroleum (OXY).
The index is rebalanced and rebalanced quarterly. COWZ has an expense ratio of 0.49%.
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This article provides information only and should not be construed as advice. It comes without any warranty.