Bank of America Flags High Cash Flow Dividend Stocks Amid AI Capex
BofA strategist Jared Woodard recommends Allstate, Cigna, and Hasbro as quality alternatives to high-spending tech giants.
Key points
- BofA warns that Amazon, Alphabet, Meta, Microsoft, and Oracle face $141 billion in negative free cash flow over the next 12 months.
- Allstate offers an 18% free cash flow yield and beat Q2 earnings estimates of $6.06 with actual results of $8.99 per share.
- Hasbro's Magic: The Gathering game posted over $500 million in quarterly revenue, a historic first for the 30-year-old product line.
Bank of America has identified a group of high-quality, non-AI dividend stocks as attractive alternatives in a market where equities remain highly valued. Strategist Jared Woodard noted that while the S&P 500 recently rose on artificial intelligence enthusiasm, the sector is consuming massive capital. The firm argues that free cash flow yield is the most reliable metric for quality because it is difficult to manipulate and allows for direct comparison across companies.
Woodard highlighted that major technology firms, including Amazon, Alphabet, Meta Platforms, Microsoft, and Oracle, are projected to generate negative free cash flow totaling $141 billion over the next 12 months. This heavy spending on AI infrastructure has pushed the S&P 500 free cash flow yield to record lows. Consequently, stocks with strong cash generation capabilities have outperformed, gaining 43% year-to-date, a pace that could set a new record.
Allstate Leads Dividend Yield Among Picks
Allstate tops the list for income investors, offering the highest free cash flow yield at 18% among the selected names. The insurer also provides a dividend yield of approximately 1.8% and has climbed 17% year-to-date. In August, the company significantly exceeded second-quarter expectations, reporting adjusted earnings of $8.99 per share against a consensus estimate of $6.06.
Cigna Raises Earnings Outlook Amid Stability
Cigna, a health insurance provider, is another recommendation with a buy rating from Bank of America. The company recently beat second-quarter earnings and revenue targets and raised its full-year adjusted earnings guidance to $30.45 per share, a slight increase from the previous $30.35 estimate. Although the stock is slightly down for the year, it offers a 2.3% dividend yield and carries an average analyst rating of overweight.
Hasbro Driven By Trading Card Growth
Hasbro completes the trio with a 3.2% dividend yield and a 7% year-to-date gain. The toy manufacturer reported second-quarter results in July that surpassed expectations, largely driven by its Magic: The Gathering trading card game. The product line achieved quarterly revenue above $500 million for the first time in its history. CEO Chris Cocks noted to CNBC that consumer spending on toys and games remains robust across a broad demographic.
