BofA: Markets do not escape the strong sell-off – The 15 shares with brave dividends that ‘beat’ the bonds

Her Eleftherias Kourtali

Bank of America maintains its negative position on European stocks, seeing a sell-off of 13% by the end of this year, for two main reasons. In this context, it identifies those stocks from the region of Europe that offer strong dividends and which will prove to be profitable and “safe” for investors in this new environment of high volatility.

Even after the recent increase in bond yields and the continuing stock market rally, 87% of European shares offer a dividend yield above the yield on domestic government bonds, as Bank of America observes. Although this percentage is lower than the 98% peak in September 2019, it is still significantly higher than the 31% observed in 2011 and 5% in 2001.

Thus, as BofA points out, for investors looking for stocks that have a generous and sustainable dividend policy, it identifies a list of 15 stocks of European companies that offer dividend yields higher than bond yields and strong dividend coverage as they have not advanced any reduction of dividends distributed over the last five years.

These are the Asr Netherlands, Deutsche Post, Heidelbergcement, SS Hexpol, FHHuhtamaki, Jde Peet, Julius Baer, ​​Omv, Roche Holding, Sandvik, Signify, Skf, Trelleborg, Vopak και Wienerberger.

However, the US bank insists on its negative stance on European markets andestimates how by the end of the current sixth there will be a significant correction of 13% in the pan-European Stoxx 600 index.

Based on this scenario, it recommends positions that evaluate the slowdown in growth, that is recommends underweight posture in the capital goods and automobile sectors, as well as overweight positions in utilities. The expectation of a further increase in government bond yields due to the reduction in support measures offered by the ECB also leads to underweight positions in the pharmaceutical sector.

The reasons that lead to correction

As BofA explains, European stocks have recovered 7% from the fall at the end of the summer, with the Stoxx 600 moving to a new all-time high last week.

The American bank points out that three were theThe reasons for this renewed rally: (a) hopes for further acceleration of growth in the US, thanks to the reduction of Covid-19 cases and the easing of supply constraints, (b) support for strong third quarter results in the US and Europe and G) the fall of 20 basis points in real yields on US bonds, ie the discount rate for shares.

However, as he emphasizes, he expects that the support from the last two factors will be reversed, since: (a) the start of the Fed tapering and the market’s opportunity for more interest rate hikes to lead to an upward trend in real bond yields, and (b) An environment of slowing growth and intensifying pressures on profit margins shows that there is no possibility of further upgrading earnings per share (EPS).

In BofA’s view, this leaves potential re-acceleration in US growth as the key risk to its estimates and therefore the factor that can “save” it from correction.