Beat the Market With Steady Income

Richly valued markets don’t always reward patience with strong price returns. So far in early 2026, the S&P 500 has delivered uncomfortable volatility with little to show for it, moving largely sideways. And hypergrowth tech darlings and popular cryptocurrencies are down around ~50% from their peak prices.

This type of environment is exactly where income-focused strategies begin to separate themselves, by generating tangible returns even when markets struggle to find direction. The S&P 500 is priced at the richest level since the DOTCOM bubble, and when markets are frothy, excitement becomes a liability.

YTD, the High Dividend Opportunities Core portfolio of common equity and diversified income funds has significantly outperformed the S&P 500, driven by disciplined positioning into undervalued sectors and a persistent focus on consistent cash flow rather than market timing. This is where income shines. When valuations are stretched and the possibility of multiple years of flat or choppy markets cannot be ignored, dividends act as powerful waiting fees, rewarding investors today while preserving flexibility to become opportunistic buyers when fear creates mispricing.

Without further ado, let us discuss our top undervalued picks to secure margin of safety in what is expected to be a bumpy 2026.

Pick 1: HQH – Yield 11.7%

Healthcare was one of the most volatile sectors in 2025, with the fear of regulation and tariffs leading to the sell-off in one of the most critical industries for an aging American population. This is a complex sector, requiring a lot of professional insight around drugs, clinical trials, exclusivity timelines, and risks from biosimilars and generics. We won’t be shy to admit we aren’t experts in this sector, but choose to invest through those who are, such as abrdn Healthcare Investors (HQH).

We were buyers through the fears, and were not surprised that HQH has soundly outperformed the S&P 500 healthcare index over the past year:

Shareholders benefit through higher prices and a variable distribution that is based on NAV. HQH pays 3% of NAV each quarter, and we expect the upcoming dividend will be $0.63/share, the highest dividend it has paid in ten years!

Looking ahead, healthcare is one of the cheapest sectors today, providing excellent margin of safety in a richly valued market. HQH pays a 11.5% yield based on our estimation for the next quarterly distribution, allowing you to collect rich income through what is expected to be a bumpy road for the markets in 2026.

Pick 2: LYB – Yield 9.2%

LyondellBasell Industries N.V. (LYB) is the world’s largest licensor of polyolefin technologies and the largest producer of polypropylene compounds. Following massive demand in the post-pandemic economy, which resulted in significant oversupply, the speciality chemicals industry is going through what is being described as the longest downturn in the petrochemical industry.

Yet, through challenging conditions, LYB continues to execute with discipline, delivering strong cash conversion, maintaining its balance sheet health, cash, and liquidity profile. With strong cash conversions for 2025 at 95% in 2025, LYB continues to show that its earnings are translating into real liquidity even at the bottom of the industry cycle. 

LYB continues to cut costs to operate lean through the down cycle through a series of internal initiatives, such as workforce reductions, disciplined working capital management, lower discretionary spending, and tighter capital allocation. All these initiatives led to LYB exceeding expectations on the cash improvement plan by $200 million, and management has raised the cumulative guidance for cash to $1.3 billion through 2026. 

LYB maintains an investment-grade balance sheet, and the company exited 2025 with $3.4 billion in cash and $8.1 billion of total available liquidity. During 2025, $2 billion was returned to shareholders in the form of dividends and share repurchases in 2025. However, the Q4 conference call provided some indications that management may be looking to recalibrate the dividend, and we expect to hear about this in the coming weeks. The market seems to like this, as the common stock has rallied since earnings.

DOW Chemicals outperformed the markets following their 50% dividend cut in 2025, while Eastman Chemicals delivered a dividend raise in December. LYB sits in the middle of both these companies in terms of financial health, dividend safety, and cash flow conversions. 

LYB is operating strong through a tough cycle, and remains undervalued. Looking ahead, despite a potential dividend cut ahead, the company is well-positioned to deliver solid total returns.

Conclusion

HQH and LYB exemplify the approach that has delivered results for High Dividend Opportunities in recent months - buy when sentiment is weak, focus on cash flow durability, and let income do the heavy lifting while markets work through uncertainty. Income remains resilient when price returns are unreliable, and it consistently creates opportunity rather than anxiety. If your goal is to stay productive in sideways markets and be positioned to act when fear returns, our Income Method is designed for exactly that.

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