With the S&P 500 already surpassing Bank of America's year-end target of 7,100, the firm's strategists are cautioning that broad index exposure may carry more risk than the rally suggests. Historically, a correction of about 10% occurs roughly once a year, prompting a search for defensive positioning.
Savita Subramanian, head of US equity and quantitative strategy at BofA, sees dividends playing an increasingly important role in total returns as payout ratios sit near record lows. She describes this as a shift toward a “total return” market, where income generation becomes a key component of investor gains.
Rather than chasing the highest yields in the Russell 1000—where dividend cuts are more common—Subramanian's screen focuses on the second quintile of payers: those yielding above the index's 1.02% average but not excessively so. Three stocks cleared this bar: Chevron (CVX), Duke Energy (DUK), and Host Hotels & Resorts (HST).
Chevron: energy strength with a 3.55% yield
Chevron offers a dividend yield of 3.55%, supported by a 31% year-to-date share gain as crude prices remain elevated amid Middle East tensions. The energy major beat expectations on both revenue and earnings in its second-quarter report on July 31, with net income surging roughly 400% year-over-year to about $12 billion.
CEO Mike Wirth described operating performance as “unusually strong” across the business in a CNBC interview tied to the results. As a Dividend Aristocrat with more than 25 consecutive years of payout increases, Chevron combines consistency with a balance sheet built to withstand oil-price volatility. LSEG-tracked analysts rate the stock a buy, with roughly 8% upside to the average price target.
Duke Energy: a century of dividends
Duke Energy presents a more traditional defensive profile, with a 3.59% dividend yield on shares up about 3% year-to-date. The utility raised its quarterly payout to $1.085 per share in July, marking a full century of uninterrupted dividend payments.
Second-quarter results were mixed—adjusted earnings per share beat estimates, but revenue fell short. For a regulated utility serving 8.7 million customers and operating 55,700 megawatts of capacity across six states, rate-base growth typically matters more than any single quarter's top line. LSEG-tracked analysts rate the stock a buy, with nearly 13% upside to the average price target.
Host Hotels: real estate resilience
Host Hotels & Resorts rounds out the list with a 3.56% dividend yield, illustrating how specialized real estate can hold up in a resilient consumer environment. Shares of the luxury and upper-upscale hotel owner have gained about 27% year-to-date after second-quarter revenue and adjusted funds from operations both beat expectations, prompting management to raise full-year adjusted FFO guidance.
CEO James Risoleo credited resilient travel spending among affluent customers and steady group bookings, pointing to the REIT's investment-grade balance sheet and diversified portfolio as support for future growth. LSEG-tracked analysts rate HST a buy, with roughly 11% upside to the average price target.
For investors seeking above-average yield without stretching into high-risk payout territory, BofA recommends these three names. As markets navigate potential corrections, dividend-paying stocks like these may offer a measure of stability. For more on market dynamics, see Dow's modest gain and stocks poised to benefit from PCE surprise.
This article is for informational purposes only and does not constitute financial advice.
