Bank of America Anticipates Dividend Growth in 2026
Bank of America sees potential for its dividend to rise in 2026. Savita Subramanian, who leads the U.S. equities and quantitative strategy at the bank, pointed out that historically, dividend growth lags earnings per share (EPS) growth by about three-quarters. With the S&P 500 expected to have solid EPS growth in 2025, dividends should also increase, she noted. Subramanian forecasts an 8% year-over-year growth in dividends for 2026, up from 7% in 2025. She mentioned in a recent note that the S&P 500’s payout ratio is near a record low of 30%, suggesting there’s ample opportunity for companies to boost their dividends. Subramanian believes we’re in an era where dividends will contribute more significantly to total returns compared to the past decade.
In this context, she encourages investors to seek out firms that are outperforming market yields, specifically those with rising yields. Currently, the S&P 500 has a yield of roughly 1.1%. To identify such companies, Subramanian and her team initially examined those in the Russell 1000 index, revising their analysis monthly while ranking companies based on their yield over the prior year. She remarked that companies in the second quintile of dividend yield are less likely to include those facing distress, which could lead to a decline into the first quintile—a group typically characterized by the highest yields—if stock prices drop ahead of a potential dividend cut.
Among the stocks highlighted in Bank of America’s recent recommendations, Reynolds Consumer Products stands out with an attractive yield of around 4%. The company, known for Hefty trash bags and Reynolds wraps, announced third-quarter revenue growth in October, as per FactSet. Although adjusted earnings per share fell slightly short of expectations, CEO Scott Huckins emphasized during an earnings call that Reynolds is thriving in a challenging environment, asserting, “We are becoming a more agile organization.” Analysts rate the stock as Overweight, predicting a 20% upside based on average price targets, despite a 14% decline over the past year.
Moreover, Macy’s made headlines with its largest December sales increase in over three years. The department store reported adjusted earnings of 9 cents per share for the fiscal third quarter, exceeding the anticipated loss of 14 cents from analysts. Additionally, quarterly sales surpassed forecasts, prompting the retailer to raise its full-year sales and profit expectations, although it still expresses caution about holiday spending. Macy’s is currently implementing a turnaround strategy, which includes investing in its workforce and closing underperforming locations. As for the stock, it carries an average rating of Hold, with about a 5% downside to its average price target, and boasts a dividend yield of 3.2%, reflecting a 37% increase over the past year.
In the real estate sector, Prologis has seen its shares climb nearly 24% over the past year, with a current yield of 3.1%. This investment trust, which specializes in warehouses and e-commerce fulfillment, raised its 2025 guidance for core funds from operations (FFO) in October. FFO is a critical measure of cash generated by a REIT, and CEO Hamid Moghaddam mentioned in an October interview with CNBC that the company is observing improvements despite some vacancies, describing their position as being “in the valley.” Analysts rate Prologis as Overweight, indicating a 3.3% upside relative to average target prices.
Lastly, ExxonMobil features on the list as one of the reviewed energy companies, offering a dividend yield of around 3.4%, which has increased by 14% over the past year. Jay Woods, chief market strategist at Freedom Capital Markets, highlighted that the stock closed above $120 for the first time this year, and described this level as significant resistance. “The risk/reward looks good and could be substantial,” he observed, noting the desire to maintain momentum above this threshold while aiming at key resistance levels around $126. Analysts have an average rating of Overweight for ExxonMobil, with a potential upside of 7.4% compared to average price targets.
