BMO says these dividend growth stocks are poised for outperformance

Dividend growth stocks are a good way to protect portfolios during times of volatility and boost performance, according to BMO. Even as stocks are in positive territory year to date, the gains have come with a few bouts of volatility. Still, BMO remains bullish on stocks for 2025 and sees no significant trouble on the horizon, chief investment strategist Brian Belski said in a note last week. “Nonetheless, given current market dynamics, we do believe price swings and bouts of volatility will become more frequent in the coming months, and will require further discipline and perspective from investors, in our view,” he wrote. Therefore, Belski would turn to dividend growth stocks, one of his favorite long-term strategies. It focuses on stocks that combine growth and yield attributes, because the companies tend to have a history of consistent earnings and cash flow, he said. These characteristics are typically rewarded by investors over a longer period of time, he noted. The dividend growth strategy has outperformed during times of volatility, as well as during times of market strength, Belski said. “For instance, looking at rolling one-year monthly returns since 1990 in which the S & P 500 registered gains of 10% or more, dividend growth stocks eclipsed the broader market by 4.4 percentage points on average,” he said. In addition, BMO’s analysis shows its dividend growth strategy has historically outpaced the market during times of rising rates. The 10-year Treasury yield, while down on Tuesday , has been moving steadily higher since last fall. The names in BMO’s strategy have had no dividend cuts in the past five years and a current dividend yield greater than the S & P 500. Each company’s latest one-year dividend-per-share growth is also greater than the index, while its dividend payout ratio is lower. The stocks each have free cash flow yield greater than the dividend yield. Here are some of the names that made the cut. Those listed below are all rated outperform at the firm. Two energy names, Hess and Marathon Petroleum , made the list. The stocks have dividend yields of 1.3% and 2.4%, respectively. Hess is up 8% over the past 12 months, while Marathon has lost nearly 2% in that period. Hess is moving toward its $53 billion takeover by Chevron . While the acquisition has been cleared by the Federal Trade Commission , a dispute between Hess and Exxon Mobil still needs to be resolved before the deal can close. A hearing before a three-judge arbitration panel is set for May . Overall, energy names are expected to benefit from the Trump administration’s policies . The president laid out a sweeping agenda on Monday that includes an expansion of oil and gas drilling. Financial stocks — and banks in particular — are anticipated to get a boost from Trump’s policies, which include deregulation . Insurance stocks Cincinnati Financial and Everest Group are both included in BMO’s strategy. The former has a dividend yield of 2.3%, while the latter yields 2.2%. Cincinnati Financial shares are up 25% over the past 12 months, while Everest is down nearly 3%.