How can I stop the pain and make money in this nightmarish market? BofA says this is the ‘best hope’ for bulls in 2022

The market is in full panic mode.

The S&P 500 is down 18% so far this year. The Nasdaq is down a staggering 27%. And even the Dow Jones, made up of the 30 largest publicly traded companies, is in correction territory.

According to Bank of America, there is one thing that could save the stock market in 2022: money that corporations can return to shareholders.

“The best hope for 2022 bulls lies in the ability of investors to dislodge $7.1 trillion in idle US corporate cash,” the bank writes in a note to investors.

Bank of America forecasts that US share buybacks and dividends, currently at a 12-year low, are likely to rise in the future.

“We expect companies to face pressure to compete for shareholders by increasing dividends and buybacks due to poor earnings growth, declining productivity and diminishing profitability prospects. [capital expenditures].”

To take advantage of a potential payout increase, Bank of America suggests ETFs that focus on dividends, buybacks and free cash flow.

Here’s a look at three to get you started.

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Vanguard High Dividend Yield ETF (VYM)

Many companies pay dividends, but some are more generous than others.

If you want to invest in a portfolio of companies characterized by outsized payouts, consider the Vanguard High Dividend Yield ETF.

The fund takes a fully replication passive approach to tracking the performance of the FTSE High Dividend Yield Index. It owns 443 shares, so it is well diversified.

The ETF’s top holdings include familiar names like Johnson & Johnson (JNJ) and Procter & Gamble (PG), companies that have been paying ever-increasing dividends for decades.

VYM also has a very low expense ratio of 0.06%.

iShares US Dividend and Buyback ETF (DIVB)

Paying dividends is not the only way to return cash to investors. Companies can also buy back their shares. When a company buys back its shares, it reduces the number of shares outstanding, allowing each remaining investor to own a larger portion of the business.

If you want to follow the buyback theme, check out the iShares US Dividend and Buyback ETF.

The fund tracks the Morningstar US Dividend and Buyback Index, which consists of companies with a history of dividends and share buybacks. His expense ratio is 0.25%.

DIVB currently owns 319 shares, with its top three holdings being Apple (AAPL), Microsoft (MSFT), and Meta Platforms (FB). In 2021, Apple spent $88.3 billion on buybacks, Microsoft spent $29.2 billion, and Meta bought back $50.1 billion of its own stock.

Pacer US Cash Cows 100 ETF (COWZ)

Free cash flow represents the money a business generates after paying all expenses, including capital expenditures. If a business generates a lot of free cash flow, it’s usually in a good position to return cash to investors.

That’s why the Pacer US Cash Cows 100 ETF is a potentially timely opportunity.

The fund is based on the Pacer US Cash Cows 100 Index, which analyzes the Russell 1000 Index to come up with the 100 companies with the highest free cash flow performance. Currently, its three main holdings are Valero Energy (VLO), Dow (DOW) and Occidental Petroleum (OXY).

The index is reconstituted and rebalanced quarterly. COWZ has an expense ratio of 0.49%.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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