October Surprise: Dividend Stocks Poised for Strong Q4 Gains
October’s market uncertainty might seem daunting, but a wave of optimism is brewing, particularly for investors in dividend-paying stocks. According to Bespoke Investment Group, the fourth quarter historically presents a potent period for gains, with dividend stocks exhibiting unusually strong performance. Their research highlights a select group of 30 S&P 500 dividend payers that have averaged over an 11.5% gain in the fourth quarter over the past decade, a trend further bolstered by the anticipated Federal Reserve interest rate cuts. This confluence of seasonal strength and favorable macroeconomic conditions positions these stocks as prime candidates for significant returns as we enter the final stretch of 2024.
Key Takeaways: Why Dividend Stocks Are Shining Bright This Fall
- Exceptional Fourth-Quarter Performance: Dividend stocks within the S&P 500 have historically shown remarkable gains in Q4.
- Favorable Seasonality: October marks the beginning of a historically strong period for three-month and shorter-term returns.
- Fed Rate Cuts Boosting Appeal: Interest rate cuts are expected to enhance the attractiveness of dividend yields compared to Treasury yields.
- Top Performers Identified: Bespoke Investment Group has pinpointed specific companies with a proven track record of high Q4 returns such as Tapestry, KeyCorp and BlackRock.
- Analyst Consensus: Leading financial analysts are supporting these findings, with overweight recommendations and compelling arguments for continued growth on multiple of these companies.
Tapestry (TPR): A Fashionable Investment with Strong Q4 History
Topping Bespoke’s list is Tapestry (TPR), the parent company of Coach, Kate Spade, and Stuart Weitzman. Over the past 10 years, TPR has averaged a stunning 17%+ gain in the fourth quarter. Its 2024 year-to-date total return, factoring in dividend reinvestment, sits at approximately 28.3%, further demonstrating its robust performance. The company boasts a 3% dividend yield, adding to its allure for income-seeking investors.
Analyst Optimism Fuels Further Growth Potential
JPMorgan analyst Matthew Boss has declared TPR an “overweight opportunity,” citing strong global momentum, particularly for Coach’s new product lines like Brooklyn and Empire, and the hugely successful Tabby handbag. Boss anticipates further upside to the stock’s multiple, accompanied by projected growth in fiscal 2025 revenue and gross margins. The viral success of the Tabby bag on social media platforms underscores the brand’s revitalized appeal and its potential for continued growth.
KeyCorp (KEY): A Banking Giant Poised for Continued Expansion
Another standout on Bespoke’s list is KeyCorp (KEY). This regional banking giant has demonstrated an average Q4 gain of nearly 15% over the past decade. Its impressive 21%+ total return in 2024, coupled with an attractive nearly 5% dividend yield, makes it a compelling investment proposition.
Analyst Insights and Q3 Expectations
Piper Sandler analyst R. Scott Siefers maintains an overweight rating on KeyCorp, recently raising his 12-month price target to $19 from $18. While slightly tempering his earnings estimate for Q3 2024 to 27 cents per share from 33 cents due to adjusted expectations for fees and expenses, Siefers expects sequential expansion in net interest income as lower-yielding assets roll off.
BlackRock (BLK): The Asset Management Leader with a Promising Future
BlackRock (BLK), the world’s largest asset manager, rounds out this trio of compelling dividend stocks. Bespoke’s data reveals an average Q4 gain of nearly 14% over the past 10 years, combined with a 2.2% dividend yield and a 2024 total return of around 18%.
Wells Fargo’s Bullish Outlook and Fixed Income Potential
Wells Fargo’s recent initiation of coverage on asset managers and brokers included an overweight rating for BlackRock, highlighting its position as “the clear industry leader” with consistent performance across key metrics. Analyst Michael Brown anticipates that 2025 could be a pivotal year for fixed-income flows, driven by the Fed’s rate cuts, a trend expected to significantly benefit BlackRock. Brown explicitly stated, “We expect this trend to be particularly meaningful for BLK.“
Beyond the Top Three: More Dividend Powerhouses to Consider
Bespoke’s report also highlighted other promising dividend stocks with strong historical fourth-quarter performance, including JPMorgan Chase (JPM), Bank of America (BAC), and Lamb Weston (LW). These companies, representing diverse sectors, offer further opportunities for diversification within a portfolio focused on dividend growth and Q4 gains. Remember, while historical performance is a useful indicator, it is not a guarantee of future results, making due diligence crucial before investing in any stock.
The Bigger Picture: Factors Driving the Q4 Dividend Stock Advantage
The compelling case for dividend stocks in Q4 isn’t solely based on historical trends. The confluence of seasonal market dynamics and the anticipated impact of Federal Reserve policy creates an environment unusually conducive to their growth. The generally enhanced confidence leading into the holiday seasons also often impacts investor behavior. Moreover, the anticipated interest rate cuts by the Federal Reserve are expected to make dividend yields more attractive relative to the yields on Treasury securities, further incentivizing investors to seek out dividend-paying assets.
While this analysis presents a compelling case for considering dividend stocks for Q4 2024, investors should conduct thorough due diligence, including assessing individual company fundamentals and risk profiles before making any investment decisions. Consult with a financial advisor for personalized investment guidance.
