Here’s How Bank of America Says You Should Invest in This Market (2024)

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According to Bank of America, it’s still possible for investors to make money in a bear market by investing in dividend ETFs.

By Michelle Smith

Edited by Ellen Cannon

Updated Aug. 10, 2023

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What are ETFs?

Here’s How Bank of America Says You Should Invest in This Market (4)

In simple terms, exchange-traded funds are bundles of stocks or bonds chosen by financial experts. These funds are then traded on the stock market much like individual stocks are.

Exchange-traded funds are often considered good investments for first-time investors. Since they often include the stock of hundreds of companies, they’re inherently diverse, and they can be less risky than investing in individual stocks. Just as with regular stock, you can start investing in solid ETFs by finding an online brokerage firm that offers ETFs.

In its memo to investors, Bank of America recommended finding ETFs that invest in companies that have a high level of free cash flow, pay high-yield dividends, offer stock buyback options, and have a low level of debt — such as the ETFs listed in the following slides.

Pacer U.S. Cash Cows 100 ETF (CBOE:COWZ)

Here’s How Bank of America Says You Should Invest in This Market (5)

The Pacer U.S. Cash Cows 100 ETF sorts through the Russell 1000 to find 100 companies with the best free cash-flow yield. Typically, a company with an increasing free cash-flow yield can afford to pay shareholders higher dividends, and a free cash-flow yield of at least 4% indicates a company is worth considering as an investment.

Vanguard High Dividend Yield ETF (NYSEMKT:VYM)

Here’s How Bank of America Says You Should Invest in This Market (6)

The Vanguard High Dividend Yield ETF specializes in companies with high dividend yields. With more than 440 stock holdings, the fund is fairly diversified and offers better value to would-be investors. As of October 2022, the Vanguard High Dividend Yield ETF paid an annual dividend yield of 2.69%.

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iShares U.S. Dividend and Buyback ETF (CBOE:DIVB)

Here’s How Bank of America Says You Should Invest in This Market (7)

The iShares U.S. Dividend and Buyback ETF focuses not only on companies that pay dividends, but also on companies that offer stock buybacks. (Many companies do both.) Dividends and buybacks are two solid ways for investors to make a profit on shares. Whether you hold onto your stock and receive dividends or sell it back to the company for cash, these shares can be a source of passive income.

Schwab U.S. Dividend Equity ETF (NYSEMKT:SCHD)

Here’s How Bank of America Says You Should Invest in This Market (8)

The Schwab U.S. Dividend Equity ETF invests in companies on the Dow Jones U.S. Dividend 100 Index, or companies that consistently pay shareholder dividends. In October 2022, the Schwab U.S. Dividend Equity ETF had an annual dividend yield of 2.83%, which is even higher than the Vanguard High Dividend Yield Index ETF.

First Trust Value Line Dividend Index Fund (NYSEMKT:FVD)

Here’s How Bank of America Says You Should Invest in This Market (9)

Unlike most other dividend ETFs, the First Trust Value Line Dividend Index Fund invests equally in every company on its roster. None of its nearly 200 stocks makes up more than 0.6% of the fund’s total investments. This low-risk approach to dividend yield ensures that all your investment eggs aren’t in one high-yield basket. Even if one of its companies falls apart, the ETF itself may not suffer a huge loss.

Alerian MLP ETF (NYSEMKT:AMLP)

Here’s How Bank of America Says You Should Invest in This Market (10)

The Alerian MLP ETF focuses on dividend-paying energy infrastructure companies, like pipeline corporations. It invests in far fewer companies than most ETFs on this list, but its 8% dividend yield is also higher than the annual yield of most ETFs. Plus, the energy sector has seen immense growth during this otherwise volatile year; energy stocks on the S&P 500 grew nearly 40% in 2022. That’s good news for energy-centric ETFs like this one, since they should expect dividends to increase as the energy boom goes on.

Bottom line

Here’s How Bank of America Says You Should Invest in This Market (11)

Interested in making extra money by investing in dividend ETFs? Start by opening an online brokerage account. An ETF broker can point you toward ETFs with solid dividend yields, allowing you to capitalize on the $7.1 trillion that Bank of America predicted companies would be shelling out to shareholders this year.

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FinanceBuzz is not an investment advisor. This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.

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