With $60 trillion in potential, this corner of the US stock market may shine!

According to Bank of America, as investors begin to tap into the $6 trillion in money market funds, dividend-paying stocks are expected to soar in the second half of this year.

The bank's strategist Savita Subramanian referred to dividend trading as "painful trading," indicating that most investors are not adequately prepared for the potential rise in such stocks.

Subramanian stated in a report this week, "With over $6 trillion parked in U.S. money market funds as the Fed prepares to cut rates, bond funds have seen record inflows year-to-date, but we think there are more opportunities in equities for yield-seeking investors."

The report highlights that the actual return potential of over 200 S&P 500 index component stocks exceeds a 2% yield on 10-year Treasury bonds, with approximately 75% of these stocks being undervalued by professional investors.

Companies with the highest dividend yields in the S&P 500 index include Walgreens Boots Alliance, Altria, Verizon, Ford, and AT&T. While the overall dividend yield of the S&P 500 index is around 1.25%, nearly 300 component stocks have yields higher than this average level.

Subramanian stated, "Overall, we expect dividends to account for a larger proportion of returns."

Another Wall Street strategist, Brian Belski of Montreal Bank, expects significant returns from dividend-paying stocks, especially after their underperformance since the stock market bottomed in October 2022.

Belski stated in a note on Tuesday, "We believe these stocks have turned a corner, and recent relative strength may continue over the next few months." He explained, "As the Fed may now cut rates earlier than previously expected, longer-term yields may decline, which should be supportive for dividend-paying stocks."

Some of the high dividend-paying stocks recommended by Belski include AbbVie, Chevron, Duke Energy, Gilead Sciences, and Pfizer.

As interest rates are set to decline, investors are chasing higher returns, and dividend-paying stocks may be an area in the stock market that is temporarily out of favor but will eventually thrive