LIVE MARKETS-Dividend growth strategy may help combat volatility - BMO

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DIVIDEND GROWTH STRATEGY MAY HELP COMBAT VOLATILITY - BMO

Since scoring its record highs late last year, the S&P 500 index .SPX has been struggling to shake off its December weakness. If fact, prior to this week, the benchmark index posted losses in four of the five past weeks.

"It seems like the 'good news is bad news' narrative has taken over again since a series of stronger-than-expected economic data points has put a damper on aggressive market expectations for multiple Fed rate cuts this year and has resulted in a sharp increase in bond yields." writes BMO Capital Markets chief equity strategist, Brian Belski, in a note out on Wednesday.

He adds "This has obviously raised the anxiety quotient among investors, particularly considering valuation levels. Nonetheless, we remain confident in our bullish outlook for 2025 and have not seen any material changes in the fundamental backdrop of US equities yet to suggest there is significant trouble on the horizon."

Nevertheless, given current market dynamics, in Belski's view, price swings and bouts of volatility will become more frequent in the coming months.

As such, BMO believes a dividend growth strategy is one way to potentially navigate current and anticipated conditions.

"Our work shows that a strategy focused on dividend growth stocks has outperformed in a variety of market environments and can benefit those investors looking to protect portfolios, as well as those investors looking to bolster performance.

BMO's dividend growth methodology involves screening S&P 500 stocks at month-end for the following factors:

No dividend cuts in the past five years

Latest one-year dividend per share growth greater than the S&P 500

Current dividend yield > than the S&P 500

Free cash flow yield greater than the dividend yield

Dividend payout ratio < than the S&P 500

Among the current list of stocks passing the screen, and as of Wednesday were rated "outperform" by BMO, include: CF Industries CF.N, CSX Corp CSX.O, Cincinnati Financial CINF.O, Domino's Pizza DPZ.O., Hess Corp HES.N, Marathon Petroleum MPC.N, and Everest Group EG.N.

(Terence Gabriel)

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