How can I stop the pain and make money in this nightmarish market? BofA says this is the ‘best hope’ for bulls in 2022
How can I stop the pain and make money in this nightmare market? According to BofA, this is the "best hope" for bulls in 2022
The market is in full panic mode.
The S&P 500 is down 18% year to date. The Nasdaq is down a staggering 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's one thing that could save the stock market in 2022: money that companies can return to shareholders.
"The best hope for bulls in 2022 lies in investors' ability to remove the $7.1 trillion in idle U.S. corporate funds," the bank said in a note to investors.
Bank of America forecasts that US share buybacks and dividends - currently at a 12-year low - are likely to rise going forward.
"We expect that low earnings growth, falling productivity and reduced prospects for profitable [capital expenditure] will put companies under pressure to compete for shareholders by increasing dividends and buybacks."
To take advantage of a potential payout increase, Bank of America suggests ETFs focused on dividends, buybacks, and free cash flow.
Here's a look at three to get you started.
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Vanguard High Dividend Yield ETF (VYM)
Many companies pay dividends, but some are more generous than others.
If you're looking to invest in a portfolio of companies that excel at outsized payouts, consider the Vanguard High Dividend Yield ETF.
The Fund uses a passive, full replication approach to track the performance of the FTSE High Dividend Yield Index. It holds 443 stocks, making it well diversified.
The ETF's top holdings include household names like Johnson & Johnson (JNJ) and Procter & Gamble (PG) -- companies that have been paying increasing dividends for decades.
VYM also boasts a very low expense ratio of 0.06%.
iShares U.S. Dividend and Buyback 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 stock, it reduces the number of shares outstanding, allowing each remaining investor to own a larger portion of the company.
If you want to follow the buyback theme, check out the iShares U.S. Dividend and Buyback ETF.
The fund tracks the Morningstar US Dividend and Buyback Index, which consists of companies that have a history of paying dividends and buying back shares. The expense ratio is 0.25%.
DIVB currently holds 319 shares, with the top three holdings being Apple (AAPL), Microsoft (MSFT) and Meta Platforms (FB). In 2021, Apple spent $88.3 billion on buybacks, Microsoft spent $29.2 billion, and Meta repurchased $50.1 billion of its own stock.
Pacer US Cash Cows 100 ETF (COWZ)
Free cash flow represents the money a company makes after all expenses -- including capital expenditures -- have been paid. When a company is generating lots of free cash flow, it's usually in a good position to return money to investors.
That's why the Pacer US Cash Cows 100 ETF is a potentially timely opportunity.
The fund is based on the Pacer US Cash Cows 100 Index, which tracks the Russell 1000 Index to identify the 100 companies with the highest free cash flow yields. The top three holdings are currently Valero Energy (VLO), Dow (DOW) and Occidental Petroleum (OXY).
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