UBS Gives 10 Dividend Stocks With The Highest Upside During Recessions

As the odds of a recession become more likely, investors may be better off choosing dividend stocks over growth stocks, according to UBS. 

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In the rebound from 2001, 2008, and 2020 recessions, dividend stocks averaged a 4.5% gain over the broader market, according to the bank. Joseph Parkhill, a product leader for U.S. equity products at Deutsche Bank, pointed out that these stocks can be used as a cushion for investor portfolios at a time when inflation remains stubbornly high, which creates uncertainty.

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As Parkhill noted in a note published on Monday, investing strategies focused on dividend growth are "significantly less volatile" than those that emphasize earnings and buyback growth, which are based on earnings growth. A margin of safety can be provided by dividend stocks during uncertain market conditions by providing a dividend.

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In response to rising expectations of a recession, market swings have increased, and the Federal Reserve has raised rates in order to quell inflationary pressures for roughly a year.

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Accordingly, UBS highlighted a number of dividend stocks with large upsides, based on its price targets. In addition to dividend growth in the mid-single digits, analysts forecast sustainable payout ratios, as well as dividend yields that are higher than those for the S&P 500 average.

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According to forecasts, these 10 stocks will gain the most in the months to come: 

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• Hannon Armstrong Sustainable Infrastructure

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• American International Group

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• Huntington Bancshares Incorporated

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• Fifth Third Bancorp

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• Fidelity National Information Services

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• Axis Capital Holdings Ltd.

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• Bank of New York Mellon Corp.

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• Nutrien Ltd

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• CVS Health Corp

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• Ameriprise Financial

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Two-thirds of analysts covering the stock rate the stock a buy or overweight, according to FactSet. The highest estimated upside was 92.3% for the renewable energy investment company Hannon Armstrong Sustainable Infrastructure. The shares have fallen by more than 43% in the past 12 months.

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A number of regional banks that have recently faced investor concerns have made the list, including Huntington Bancshares, Fifth Third Bancorp, and Fifth Third Bank of Chicago. Even so, UBS forecasts a 57.7% rally in Huntington Bancshares' stock in 2023, despite a fall of 20.5% in 2022.

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Investors can take advantage of Huntington Bancshares' hard-hit fundamentals at this point, according to UBS analyst Erika Najarian earlier this month.

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Fifth Third Bancorp shares are also bullish at UBS, with a price target of 56.9%. UBS said Fifth Third's "transition to high quality regional appears to have already been fully priced out of the stock at current levels." FactSet data shows more than six out of ten analysts are recommending the stock as a buy or overweight. Over the past year, shares have declined more than 20%.

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UBS highlighted American International Group as a dividend stock with high upside potential. Since the beginning of the year, the company's shares have tumbled nearly 25%. However, UBS sees the shares gaining 64.8% over the next year.

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UBS also included CVS on its list. The stock fell 20.5% since the beginning of 2023, but UBS expects it to rise 37.2% in the near term.