5 Must-Have Dividend Stocks For Small Gains In Second Half

The first half of the year has been splendid, with returns surpassing Wall Street estimates and being double of the average 4% gain since World War II, as per research firm CFRA. But, what could cap gains in the second half is an economy that’s not expanding fast enough, policy gridlock, a more hawkish Federal Reserve and stock prices that are stretched.

Given the widespread uncertainty, investing in companies that pay consistent dividends can make for wonderful investment choices. Such companies are financially stable and mature, and can even generate steady cash flow irrespective of market conditions.

Small Upside for Stocks in the Second Half

The Dow Jones and the S&P 500 gained around 8% in the first six months of the year, their best performance since 2013. The Nasdaq Composite Index carved its best first half of a year since 2009, rising 14.1%. Gains were driven by expectations that the Trump administration will deliver on the much-awaited policy changes, strong corporate earnings, more confident consumers and an upbeat labor market.

However, the stock market is expected to rise marginally in the second half of the year, with the S&P 500 projected to close the year at 2,460, just 1.1% above its Jul 5 close of 2,432.5, as per a Reuters poll. In fact, several poll participants projected a correction of at least 10% this year, something which the benchmark index hasn’t witnessed since the beginning of 2016.

It’s hard to imagine a second half as strong as the first. Economic growth in the U.S. is likely to disappoint in the second half as prospects of the much-anticipated Trump administration policies continue to dwindle. An overly aggressive Fed, pricier U.S. stocks and the cooling off of top-performing tech stocks raised concerns. Let us now take a look at the factors that are expected to plague the broader markets in the second half.

Economic Growth Worries Loom, Policy Gridlock

The International Monetary Fund (IMF) trimmed its projections for U.S. economic growth to 2.1% this year from 2.3%. The IMF curtailed its growth forecasts as it rejected Trump’s tax cut and fiscal spending plans. The outlook for Trump’s pro-growth policies is also clouded as he failed to get the stimulus agenda passed. Senate Republicans were compelled to delay the healthcare vote due to lack of support, with Trump’s administration seeing few legislative successes. Trump has repeatedly said that he wants to repeal and replace Obamacare before moving on to his other business-friendly policies.

Trump, in the meanwhile, is promising to increase U.S. economic growth to 3% a year during his first term. However, the IMF says that 3% goal is “an extremely optimistic growth assumption”. With the U.S. jobs market nearing full employment levels and slow gains in productivity, IMF believes it will be an uphill task to boost growth to 3%. IMF also warned that lower and middle class Americans will bear the brunt of Trump’s budget cuts in the near term.

Fed Rate Hike Fears

Last month, Fed hiked rates for the second time in three months. They also stuck to their plans of another hike this year and issued forecasts that showed three more quarter point rate increases next year, similar to the projection issued in March. At the same time, minutes of the June 13-14 Federal Open Market Committee meeting showed that “several” officials were in favor of paring back its $4 trillion-plus bond portfolio within a “couple of months” (read more: Zacks Investment Research

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Written By: Zacks Investment Research