BofA warns of 0% Returns over the Next 10 years — but here’s the 1 key strategy to fight it

Are stocks values supposed to be set up for the next decade of shocking returns?

Well, Bank of America isn’t thinking so. Instead, the giant’s valuation model of the banking sector is estimating zero return for the share market for the next ten years. It may sound distressing not only to you but for all of us it is the same, but wait, here’s some good news.

What is the strategy to avoid the estimated situation?

Savita Subramanian, the strategist of Bank of America U.S. equity and quant, has pointed out one particular way that may prove to be crucial for investors over the next decade, and the approach is “REINVESTING DIVIDENDS”.

As per a recent note to the investors, she claimed that one simple move of reinvesting dividends may be able to generate an aggregate return “equivalent to the S&P 500 at 6,000,” with an assumption that payment growth remains close to its long-term average.

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The strategist recommended this approach after having a look at the dividend growth of the three sectors mentioned below; they could be worth giving a chance from your spare change.

Energy

The dividends generated from the energy sector are not exactly engraved in stone. In fact, with the continuous rise in inflation and prices of oil going up only, energy stocks are coming back again. Since the beginning of this year, the stock value of Chevron has been rising nearly up to 30 percent, Exxon Mobil has made a comeback with a raise of over 50 percent, on the other side, ConocoPhillips has seen a rise of about 88 percent which is jaw-dropping.

However, during the same period, just to put that in outlook, the S&P 500 has come back with a rise of about 20 percent.

BofA warns of 0%
BofA warns of 0%

In the second quarter of this year, oil and gas companies witnessed substantial growth year after year in both earnings and revenue. In comparison with the remainder of the market, the supermajors still give huge dividend earnings even with the colliding stock values.

The dividend rates provided by giants are below:

  • Chevron provides 4.9 percent 
  • ConocoPhillips provides 2.5 percent
  • And Exxon Mobil is earning a huge 5.6 percent

No doubt, energy is a variable sector and with that the question on the long-term sustainability of fossil fuel always raises concern. 

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So, what’s the good news? If you are standing on the edge and just about to jump into the space then certain investing applications will reward you with cost-free shares of Exxon Mobil and Chevron only for signing up.

Financials

Amidst market participants who are scared of an increase in interest rates, the financial institutions and particularly the banking sector watch for the same. Banks provide money out at much higher interest rates than the rates they borrow at, understand the difference.

Further, since the rate of interest increases, the money yield by banks becomes wider. The banking sector is experiencing a huge yielding rise this year. Multiple giant banks have increased their dividends which is especially great for the investors who seek to invest the same again.

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Goldman Sachs has recently increased its quarterly dividend by 60 percent to $2 for each share, whereas Morgan Stanley has increased its quarterly dividend by two times to $0.70 for every share, and JPMorgan Chase raised its quarterly dividend by 11 percent to $1 per share.

All three banks have seen a rise by a minimum of 30 percent year to date and that signifies that they aren’t precisely inexpensive.

For example, the current stock price of Goldman Sachs is above $400 per share but you can still get one share free of cost by simply using a famous stock trading application that provides you with the opportunity of buying portions of shares with the amount of money which you are interested to spend.

Materials

As recommended by Savita Subramanian, the third sector is materials, which comprises those companies which are involved in the finding, development, and processing of raw materials. By any means, this is for sure not an exciting sector but across many years, materials have established strength in an era of rising inflation. Despite whether the Fed thinks it’s variable or not, inflation is shooting up.

The stock price of the S&P 500 materials has been raised by nearly 16 percent to date which is lesser than the wider market. But the materials stocks will be leveled perfectly to exceed if the consumer prices still keep rising over the next ten years. 

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Through ETFs such as the Materials Select Sector SPDR Fund, investors can gather experience in materials, which is providing a dividend earning of 1.6 percent currently. Or else you can alternatively go with the individual dividend-paying stocks in the sector like industrial gas producer Linde, copper miner Freeport-McMoRan and special chemicals giant DuPont.

Optimum Asset in a “lost decade”

If the prediction made by Bank of America is correct then it is going to be a tough decade for those who invest in the stock market. The maximum of the corporate growth prospects of the country may be already priced in, with valuations already extended. But there is a predominantly expensive asset- U.S. farmland. No matter if we face a rise or decline, people still need to have food on their tables. The new platforms enable you to invest in farmland by preserving a share in a farm as per your choice.

In such a scenario, despite the stock market remaining flat throughout the next decade, you will still be earning a cash income from the crop sales and leasing charges. And obviously, you will be getting an advantage from any long-term appreciation, beyond everything.

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