The narrow trading range in bank stocks and the recent slump in oil stocks after the rally gives investors another strong medium risk and high reward opportunity. Markets will bid stocks like Exxon (NYSE:XOM) and Wells Fargo (NYSE:WFC) higher if the economic activity booms in the near-term.
Chances are good that despite higher COVID-19 infection counts worldwide, countries will find a way to re-start the economy. Governments learned that they needs to increase new and regular COVID-19 testing and trace the spread. That will keep daily infection rates from growing.
As the economy bounces back from depressed activity as experienced in March through to May, energy demand will increase. Investors should look at Exxon’s prospects. The stock pays a dividend in the 7.5% range.
In the financial services sector, Wells Fargo’s dividend yielding around 7% is compelling for income investors. The company already posted high provisions to account for loan delinquencies. But as those risks subside, the downside risk of holding Wells Fargo stock will decline.
Takeaway
A dividend cut in WFC or XOM stock would trigger some selling pressure but is ultimately an acceptable trade-off. The yield is already very high, so as long as the cut is minimal, these stocks should not fall by much.
