BofA’s Favorite Non-AI Stocks. Plus, Nvidia’s Penny Dividend | Barron's Streetwise

I'm going to have to get energy somehow.

>> Do you have like a hype song?

>> Alexa, play Fortunate Sun by Credence Clearwater Revival.

>> Oh, nope. Let me find some licensed music that we can actually use.

There we go.

>> You're listening to the Baron Streetwise podcast. I'm Jack How. With me, our

podcast. I'm Jack How. With me, our audio producer, Alexis Moore.

>> Hi, Jack. My email box is filling up with all the 2026 look ahead reports, the predictions for what's going to come to pass in the stock market. Everyone

sounds so confident. Here's some This is someone I don't know. It just says in the subject line, "2026 will break the 4-year crypto cycle." I think crypto has already started tanking. So, I don't

know if we're breaking the tanking cycle or the pre-tanking cycle and it's going to tank more. I don't know. Here's one

from someone I do know. Barkclays. This

is uh Venu Krishna. We had him on the podcast just a little while ago. Says,

"Our 2026 S&P 500 price target goes to 7400 from 7,000."

It was taking earnings estimates up. It

talks about mega caps continuing to execute. Talks about the AI race showing

execute. Talks about the AI race showing no signs of slowing. That price target works out to 12% upside from here, almost 13%. That would be nice. I don't

almost 13%. That would be nice. I don't

know if it's going to happen. Stocks

look very expensive. The S&P is at 25 times earnings. I'm not predicting a

times earnings. I'm not predicting a crash, but I'm also definitely predicting a crash. They just happen every so often. The key is I can't tell

you whether it will be next week or next year or many years from now. Not very

helpful, I know. So, you either stick with the S&P 500 and hope that prices continue to climb or you diversify into something that can give you downside

protection. But that something probably

protection. But that something probably isn't doing nearly as well as all these big AI stocks. So if you're wrong, you miss out on return. It's a pickle. I

have thoughts on one way that investors can hedge their index funds or let's say complement their index funds. It's a

little out there. It didn't used to be, but it is now. Some of this might sound a little bit nuts. It has to do with dividends. Dividends have only been as

dividends. Dividends have only been as derided as they are today once before.

And that did not end gently for investors. I want to talk to you about

investors. I want to talk to you about the stock market's most important penny.

I'm referring to Nvidia's dividend. You

might be thinking, Nvidia's what now?

There has been a lot of talk about Nvidia over the past week. The stock

market had been sliding for days heading up to Nvidia's third quarter report. You

could almost hear investors saying to themselves, "Is this a bubble? I don't

know. We'll find out when Nvidia reports." and Nvidia reported and sales

reports." and Nvidia reported and sales of artificial intelligence chips and forecast for more of the same. They beat

estimates by billions of dollars. It was

a well-received report, but it failed to send the stock market higher the following day. I want to focus on

following day. I want to focus on something else we learned on page one of this quarterly report. It was the answer to a question that absolutely no one has been asking. Nvidia will keep its

been asking. Nvidia will keep its dividend unchanged.

Yes, it pays a dividend. In fact, it used to be a decent yielder. And the

month of November, that used to be payment raising time, but there have now been many years of stunning stock price gains and splits and no dividend increases.

So, Nvidia's dividend payment is down to one penny per share per quarter. That

makes for a yield of 0.002%.

Let's put it this way. If you own $1 million of Nvidia stock, you're going to put $2 in cash in your pocket each year, unless you reinvest it into a pretty

small fraction of a share. Of course,

Nvidia investors are not complaining.

They've made 24,000% over the past decade. So, why am I calling attention to this penny? It's

because I think Nvidia's dividend tells a broader stock market story. Prices

have shot higher for a lot of stocks.

Not quite as high as Nvidia, but pretty high. And lots of companies have skimped

high. And lots of companies have skimped on dividends. And so the S&P 500's yield

on dividends. And so the S&P 500's yield right now is just 1.1%.

I call it finance's vestigial tailbone.

It's an evolutionary holdover without a clear purpose. But as I said, this is

clear purpose. But as I said, this is not the first time this has happened.

Dividends are meant to be an important part of total returns. But they're more than that. When the market crashes,

than that. When the market crashes, dividend payments tend to hold up much better than paper earnings. I think a lot of people underestimate the degree to which a crash in the stock market can

spill over into real world economic effects. If it's a bad downturn, that

effects. If it's a bad downturn, that can make riding it out difficult.

Dividends give savers income to use to ride out recessions and layoffs or a means of reinvesting in their shares at lower prices. Let me explain why I think

lower prices. Let me explain why I think all of this matters a lot now and I'll give some thoughts about how to buy some dividend income. And I will come across

dividend income. And I will come across a little bit like a guy building an arc in the desert, but bear with me. I'm

going to have to do a little bouncing around in a time machine, but I will try to keep it to the past 425 years. First

stop, January 1999. That's when Nvidia went public. Longtime investors remember

went public. Longtime investors remember 1999 as the last year of a big boom in prices during the dotcom stock bubble before it popped the following year. I

have given people glimpses on this podcast before of what this period looked and felt like. Dividends were way out of fashion. It felt like the idiots were the geniuses cuz they were making

loads of money every day. And the smart people who were worried about valuations, they were the nerds who just didn't get it. I don't think I told you before. I guess it's all right to tell

before. I guess it's all right to tell the story. It's been a quarter century.

the story. It's been a quarter century.

I won't give any names. There was a guy I knew in the late 1990s that picked up the nickname Tandyman. He had put every dollar he could scrape together into AOL

stock and he would never sell. Today,

people say hodal. H O DL. That's a

misspelling of hold. And that's a war cry for holding your stocks or your crypto or your whatever till the end, no matter what happens, right out the dips.

Well, this guy was an original holder, but he had to pay his bills. He had to pay rent. To top off his paycheck and

pay rent. To top off his paycheck and get by without having to sell any of his AOL stock, he figured out a way to use his Radio Shack credit card to get a

little cash back. I do not recall the details. Honestly, Tandy was the parent

details. Honestly, Tandy was the parent corporation of Radio Shack, so people who were celebrating his tremendous AOL gains would call him Tandyman. AOL stock

fell apart and Tandy Man lost it all. he

overholdled.

There was a lot of that sort of thing going on back then. I mentioned Nvidia's IPO in 1999 to explain why this company wouldn't have paid dividends sooner. No

one was interested. Price gains were easy, and what investors wanted from their companies was to watch them reinvest their capital into building out the internet economy. The S&P 500's

yield would go on to bottom out around 1.1% where it is now in other words and dividend payments would fall below 1/3 of earnings. The average over the past

of earnings. The average over the past century is more than 1/2. The following

year the bubble popped. The S&P 500 lost half its value and the NASDAQ composite that lost three quarters. That NASDAQ

index doesn't include dividends and it took 15 years for it to get back to its 2000 peak. Okay, back into the time

2000 peak. Okay, back into the time machine. We're headed to November 2012,

machine. We're headed to November 2012, exactly 13 years ago. Nvidia reported

quarterly earnings just like this past week. Only there was no mention of

week. Only there was no mention of artificial intelligence, just video gaming and a little side hustle in supercomputing. And Nvidia was trying to

supercomputing. And Nvidia was trying to figure out a way to gain share in mobile devices. The results were decent. There

devices. The results were decent. There

was a rising cash balance, but the stock price was wallowing at less than half its 2007 high. It just so happens the dividends were cool again. So, Nvidia

launched one that was chunky enough to put its yield immediately at [music] 2.4%.

And the stock gained 8% in a day. Back

in the machine and really pull that lever cuz we have to go all the way back to March602.

I'll make this quick. A bunch of trading companies merged to create a company that I can't quite pronounce because my Dutch pronunciation isn't great, but the initials of the Dutch words are VOCC,

and you probably know it better as Dutch East India Company. There had been joint stock companies before Dutch East. The

way they worked is they raised fresh capital for each trading voyage. Then

they returned and they split the winnings right at the dock. Dutch East

came up with a financial innovation, dividends. The company would make cash

dividends. The company would make cash payments to shareholders but also retain and recycle some capital that made it a perpetual stock and one of those needs a

place for trading. So investors created the world's first stock exchange in Amsterdam. The point of this is that

Amsterdam. The point of this is that dividends gave birth to the stock market, not the other way around. I

think that modern accounting and pretty high levels of investor trust have reduced dividends to a sideshow, but they used to be the whole point. Okay,

we have one more stop. This one is November 2019. And this was the first

November 2019. And this was the first November since Nvidia launched its dividend that it did not give shareholders a raise. Why? The stock

price had been rocketing higher for years on this growing realization that the highly parallel computing that was used to draw video game pixels was a good fit for artificial intelligence,

too. The earnings call was filled with

too. The earnings call was filled with mentions of AI and hypers scale data centers. Dividends didn't come up. Okay,

centers. Dividends didn't come up. Okay,

let's power down the time machine. By

now, you may be asking, who cares? It's

a fair question. Nvidia, since it stopped growing its dividends, has spent massively on stock buybacks. Not quite

enough to meaningfully reduce its share count, but still. And more importantly, the S&P 500 over the past decade has returned 278%.

There's a subset of that index that follows companies that have many years of raising their dividend payments. It's

called the S&P 500 dividend aristocrats.

And if you own that one instead, over the past decade, you lagged behind by more than 100 points. So why should we care about dividends? Well, first, that underperformance for dividends has a lot

to do with recent valuation bloat for the stock market. The S&P 500, as I said, has plumped up to 25 times projected earnings from 19 times 3 years

ago. So, if you invested instead in that

ago. So, if you invested instead in that aristocrats index at its inception just over 20 years ago, and you checked in on your account 3 years ago, you would have

made 402% and beaten the S&P 500 by 80 points.

Anybody can cherrypick a period where a given investment strategy worked well, but this one is no anomaly. From 1973

through the end of last year, companies that grew or initiated dividends returned an average of 10.2% a year.

That's almost 6 percentage points a year better than returns for non-payers.

Companies that cut or quit their dividends had negative average returns.

That's according to data compiled by Hartford funds. Since 1960, dividends

Hartford funds. Since 1960, dividends have contributed 85% of the S&P 500's total returns. I know that figure sounds

total returns. I know that figure sounds absurdly high. It has to do with the

absurdly high. It has to do with the long-term power of compounding. Most

people don't have what is that 65 years.

Most people don't have 65 years to invest. But even over intermediate

invest. But even over intermediate periods, the compounding power of dividends adds up. If you look at average returns by decade since 1940, during the average decade, dividends

kicked in 34% of total returns. This is

a lot of numbers, I know. I'm going to give you one more set of numbers because this set is maybe the most important of all. It has to do with what happens

all. It has to do with what happens during big stock market downturns, 10% or more. During downturns like that,

or more. During downturns like that, since 1975, companies that paid dividends lost an

average of 14.4%.

The S&P 500 did 5 1.5% worse. Companies

that don't pay dividends did about 14 points worth on average. In other words, the non-payers fell twice as much as the payers. That's really where dividends

payers. That's really where dividends shine brightest is during downturns.

We're at the point where the market's dividend yield has matched its dot bubble low because companies are allowing their earnings to grow much faster than their dividend payments. We

will soon breach that era's payout ratio or dividends as a percentage of earnings. In other words, it's a stingy

earnings. In other words, it's a stingy world for investors looking for dividend income. You can buck the trend. For

income. You can buck the trend. For

example, there's an ETF based on that dividend aristocrats index. The ticker

is N OL. It's from ProShares. It's uh

let's call it a step in the right direction. The fund yields 2.2%.

direction. The fund yields 2.2%.

It costs.35%

a year. It's a little much for a cheapkate like me, but it's not terrible. This one might be better.

terrible. This one might be better.

Schwab US Dividend Equity. The ticker

there is SCD.

That's based on an index that basically screens for sustainable yield using a more rigorous approach. That portfolio

yields 3.8% and it costs just 006%. That's more in my price range. Two things that stand out to me about that portfolio is it's

not super duper loaded up obviously on big tech, but also on finance. A lot of value funds are stuffed with banks. This

one isn't. And of course, you get a lot more yield. The other thing that stands

more yield. The other thing that stands out, remember the S&P 500 25 times earnings. This dividend portfolio traded

earnings. This dividend portfolio traded recently at a PE ratio of 16.7.

That's pretty close to the long long-term average for US stocks. By

long, I mean around 125 years. It gets

iffy because there are new ways of measuring earnings that have popped up over the years. And also, it depends a lot whether we're talking about trailing earnings or estimated earnings for this year or next four quarters. But in the

back of my head, I think of 15 as around the historical average price earnings ratio for the US stock market. So this

one's not far above that at a time when a lot of other stuff looks expensive.

That's it. I don't add a lot of stuff to my investing approach. I have described my stripped down financial nudism philosophy on this podcast before, but dividends are one thing where you might

have to force the issue a little bit. I

think they could really come in handy if the stock market doesn't do as well as we hope in the years to come. By the

way, I realize I've made comparisons between now and the dot bubble, and I realize that companies are very far removed from those conditions in terms of their financial situation. They are

profoundly profitable. I don't think it changes what I said about dividends, but just to give you a sense, Wall Street estimates that Nvidia will generate over

$93 billion in free cash flow this year and $151 billion next year. That's a

shocking amount of money. Nvidia has

already passed Microsoft in free cash flow. If those estimates are accurate,

flow. If those estimates are accurate, it will soon pass Apple. The company, of course, needs to invest some of the money it makes into its chip technology.

We've had co-founder and CEO Jensen Hang on this podcast. He knows a heck of a lot more than I do about how best to invest money in chips. But those

monstrous free cash flow numbers I just cited, that's after yearly capital expenditures of only around $5.5 billion. And the dividend that cost just

billion. And the dividend that cost just a billion. Let's take a quick break.

a billion. Let's take a quick break.

That was a rambler, I know. When we come back, we're going to hear about some nonI stock picks. We'll hear from a researcher at BFA Securities who has

assembled the big brains over there to figure out which stocks they like the most that have nothing to do with machine learning, large language models,

even medium language models, I think.

We'll be right back.

Welcome back. BFA Securities recently published a note titled, "When the spotlight becomes too hot, opportunities away from AI." My interest was peaked. I

want to hear about some opportunities away from AI. We reached out to TJ Thornon. He's the head of research

Thornon. He's the head of research marketing at BFA Securities. He puts

together theme reports calling on analysts from different groups. There

are 16 stock picks in total in this new report. In a moment, you'll hear a part

report. In a moment, you'll hear a part of a conversation where I list all of them and mispronounce one. But first,

let's hear TJ give a couple of quick details on a few of the picks. Starting

with Eversource. The ticker there is ES.

>> That's a regulated utility in Connecticut. There is a company specific

Connecticut. There is a company specific story here and that is that the regulatory environment in the state of Connecticut is sort of getting less ownorous.

>> Next up is a mining company, Freeport McMorren. [music] The ticker there FCX.

McMorren. [music] The ticker there FCX.

Freeport actually does have a bit of an AI angle given that they are a copper miner. It just happened that it wasn't

miner. It just happened that it wasn't trading like an AI stock because they'd had this mine disaster. So, it's kind of an interesting one where maybe they're not getting a whole lot of credit for

this indirect exposure to AI.

>> BFA is bullish on copper and they recently upgraded Freeport to buy a third stock, Keycorp, ticker there, Ky.

>> That's a bank that's definitely not defensive. that's going to be cyclical

defensive. that's going to be cyclical and highly dependent on what happens to [music] the US economy. But our analyst view is that that's actually what makes it interesting is that you know if you

get this broadening and you get an improvement in capbacks and M&A and we've already seen some of that [music] especially on M&A that stock will work.

There are more stocks than these and TJ has some things to say about the research more broadly. Here's part of that conversation.

You've published a piece of research here. It's kind of is it a reverse

here. It's kind of is it a reverse theme? Is it an anti-thes?

theme? Is it an anti-thes?

It's stocks that are expressly not in AI. They have little or nothing to do

AI. They have little or nothing to do with AI. What's the purpose of this

with AI. What's the purpose of this piece of research? Why is that um an important thing to put out now? Is it a way to complement the exposure you have in maybe your stock index funds?

>> Yeah, I mean I think there were a lot of reasons why we did it. I think one is that we all know the AI stocks pretty well, right? Yes, there's some value in

well, right? Yes, there's some value in talking about Nvidia and the quarter and what you know what we think.

>> I've heard of that one.

>> Yep. But uh that gets a lot more exposure than stocks that don't fit that AI theme. So there was a view that maybe

AI theme. So there was a view that maybe generally in the market these nonAI stocks are being sort of neglected and because there's so much interest in the

AI stocks but you know if your view is that we're sort of closer to uh the end of the AI trade than not you know stocks that don't have exposure to AI maybe

ones worth looking into.

>> On the report you published 16 buyrated stocks that came up on the list. I'm

going to run very quickly through the names. We won't go into detail about

names. We won't go into detail about them, but Amcor, AT&T, BGC Group, Church and Dwight, Dollar General, Eversource

Energy, Freeport, McMoran, Henry Shine, JB Hunt, Keycorp, McCormack, ONIK, Progressive, Regency Centers, Viking Holdings, and Walt Disney. As you put

the group together, what stands out about the list? Anything? I mean, like, what does the market that's the non AI part of the market look like right now?

I presume it has to be cheaper. Does it

maybe have a bigger dividend yield? What

stands out to you about if if not this list in particular, the nonAI portion of the stock market right now?

>> So, you know, there are different attributes in in that list. You know, we could have also said, all right, well, we're also looking for defensive names because if you think that the AI bubble will burst, the market will probably

sell off and probably the defensive names will act best. But we didn't do it that way. You know, we didn't look for

that way. You know, we didn't look for expressly a defensive list. There are

definitely defensive names on that list.

It sort of runs the gamut. And I think the idea with the list too was not to put out a portfolio. It was more to say, look, here's your big list and here's your, you know, smaller list of 16

stocks. And within that, depending on

stocks. And within that, depending on what your orientation is, if you're looking for defensives, if you're looking for something that's got a bit more cyclicality, you know, you should be able to find some things. At the time that we're talking, we've seen the stock

market in the US wobble for a few days, and investors are wondering, is this the the big tech downturn we've been waiting for, the AI tumble, or is this just a pause and we're going to continue

forward from here? And we're waiting to see what's the consensus over there about is the stock market in the US still an okay deal for investors? Should

investors be reasonably optimistic about the path forward for stocks?

>> Yeah. So, I believe you've had Svita, our US equity strategist on this podcast in the past. She's still reasonably optimistic. She's got kind of a 12-month

optimistic. She's got kind of a 12-month target that, and we talked about this a little bit in the piece, offers about an 8% return, which is about an average return. She has tended to prefer this

return. She has tended to prefer this sort of broadening story, which this has worked very recently in the month of November, but you know, previously really hadn't because it's been so

dominated by the mega caps. So, that's

where she is. So, she's reasonably optimistic. does prefer sort of the

optimistic. does prefer sort of the average stock to the index because she thinks that on the AI side things have gotten a bit overdone. I mean she's

mentioned the fact that capex to operating cash flow for the hyperscalers is basically at the same level as it is for the US oil majors on a on a

percentage basis. So they're becoming

percentage basis. So they're becoming very capital intensive and you know her view is that the multiples are too high in light of that. And so I think it's

all consistent with this piece which is all right well if these are stalling out um you at least want to want to look elsewhere. And I think another

elsewhere. And I think another interesting thing in the markets over the last several weeks has been that you know even within Mag 7 you're seeing a lot of differentiation.

>> I saw the a couple of weeks ago Amazon talked about how this um our cloud business we're seeing tremendous growth.

It's a direct result of AI. This money

that we're spending is making money right away. It's being put to great use.

right away. It's being put to great use.

Investors cheered. The stock went up a lot. Meta came along and they said, "We

lot. Meta came along and they said, "We think we're seeing maybe the beginnings of some return on this AI spending in our core business. We think, I'm paraphrasing, of course, then they say, by the way, we're going to spend a ton

of money going forward." And investors just were not having it and the stock tanked. So, to your point, yeah, some

tanked. So, to your point, yeah, some real differentiation going on there. You

know, both saying the same thing.

They're going to spend a lot on AI, but in investors seem to want to see that money being made sooner rather than later.

>> Right. Exactly. And so, you know, I think that's an argument for stock picking that it's not just about picking a theme broadly and owning these all these mega caps. And that gets to sort

of Sevita's point, which is that, you know, capex is high. And so, if there's not a line of sight to those returns, it's maybe a more difficult case that you've got as a stock. And of course,

you know, I think some of these other mag seven stocks that do have cloud businesses, right? I mean, Amazon,

businesses, right? I mean, Amazon, Google, those cloud businesses are viewed as big beneficiaries as well. And

you know, Meta doesn't have that.

>> I want to ask you about something. This

is not from your report on nonAI stocks, but it's just on my mind. And maybe you have thoughts, maybe you don't, but it's about dividends. It's about dividend

about dividends. It's about dividend investing. I feel like dividends just

investing. I feel like dividends just seem to be hopelessly out of fashion, out of favor. Like no one cares, you know? It feels like, you know, one of

know? It feels like, you know, one of these, what do they call them? Vestigial

organs, like the tailbone or something like that. Like, no one can quite

like that. Like, no one can quite remember why this thing is still around or what it used to do. But once in a while, you get a a headline like I saw that Disney had results. Disney is one of the stocks in your list. They had

results recently. Disney, you know, stock has been, I guess, a little out of favor for a while. And they had results.

They said, "We're going to raise our dividend payment by 50%." I thought that's great news. kind of what companies do now when they have to sort of sweeten the appeal for shareholders.

So I looked at what the yield's going to be with a new dividend and it was like I don't know 1.4ish percent. So it's still pretty low. I think the S&P 500 dividend

pretty low. I think the S&P 500 dividend yield is in the neighborhood of 1% or more recently it was even a little smaller. It's like the lowest in

smaller. It's like the lowest in decades. And yet I can't help but feel

decades. And yet I can't help but feel that dividends are like the answer to in investors anxieties right now. Like if

you thought the market was going to go lower and if you had a portfolio with a decent dividend yield, you could continue reinvesting those dividends at lower prices. What do you make of

lower prices. What do you make of dividends and their importance for investors? Should anyone care? Should

investors? Should anyone care? Should

anyone care about whether a company has a dividend yield right now?

>> Yeah, and it's a fair point. You know,

One Oak, uh, which is actually one of the names on on the list, does have a decent yield and has been a lagard, not surprisingly. So, yes, nobody has cared

surprisingly. So, yes, nobody has cared that it's got a compelling dividend yield. It's just continued to go down.

yield. It's just continued to go down.

One of course when I said it I said on [laughter] so uh we'll leave that in for I deserve that.

>> That's a um a state school in upstate New York. [laughter] Right.

New York. [laughter] Right.

Exactly.

>> But no, I I think well look one interesting point we Michael Hartnett publishes his fund manager survey once a month and you know one of the points

that he made when he published based on the latest survey is that for the first time really in the history of the survey people think that companies are

overinvesting. A net 20% of respondents

overinvesting. A net 20% of respondents said we think companies are overinvesting and actually historically they tend to think that companies are underinvesting and the antidote to that

is that they think that companies should focus on balance sheets. So, you know, I don't know that they would necessarily say that dividends are the way to go,

but I think that this idea that companies are spending too much on growth. If that indeed gets some

growth. If that indeed gets some traction, as it seems to be starting to, there may be some a shift back to dividends and buybacks and, you know, some of the things that historically

have been really important when it comes to the total return of the market.

>> Thank you, TJ. If you have a question you'd like played and answered on the podcast, you can send it in. It might be in a future episode. Just use the voice memo app on your phone. Send it to

jack.how. That's h o gbearrens.com.

jack.how. That's h o gbearrens.com.

Thank you all for listening. A shout out to Sunni Onia. Go fighting woodchucks.

Alexis Moore is our producer. You can

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