Investors looking for dividend-paying stocks in this market don’t have to sacrifice quality. In fact, there are some companies with strong balance sheets and good management, as well as stable dividends with growth potential, according to a note from UBS last week. The dividend may look more attractive to investors as the Federal Reserve begins to cut interest rates. Bond yields will also be lower, which could prompt investors to look elsewhere for income. The central bank has indicated that it will start cutting rates this year. What’s more, the income generated by dividend-paying equities can help protect your portfolio during market volatility. UBS compiles a list of high-quality global dividend stocks using quantitative models, as well as fundamental analysts. First, the machines’ algorithm is screened for names with a quality dividend stream with the earning power and balance sheet to back it up. The algorithm also evaluates the stock’s potential to outperform the sector. Then, the company’s fundamental analysts look at subjective factors, such as the quality of management and investor sentiment. The algorithm then assigns the best stocks, taking into account regions and sectors to have different sources of income. “During the process, we emphasize the stability and growth potential of the dividend stream, as opposed to the current yield,” analyst Claire Jones said. Here are some of the US names that made the cut. Investors can earn a dividend yield of 2.69% with Home Depot. The home improvement retailer, which is down more than 2% year to date, reported a revenue shortfall for the first quarter. However, the company reiterated its full-year guidance, expecting total sales to grow 1% in fiscal 2024. “Home improvement customers are very healthy from a financial standpoint,” Chief Financial Officer Richard McPhail said in an interview with CNBC after the earnings. report in May. “And it’s not like they don’t have the ability to spend. What they’re saying is that they’re just delaying the project because of the higher rates, so there’s no proper time to execute it.” In the energy space, Exxon Mobil is one of the most prominent names in UBS. The oil giant pays a 3.35% dividend and is up more than 11% so far this year. In May, Exxon acquired Pioneer Natural Resources in a deal valued at $59.5 billion. The company said the acquisition more than doubled production in the Permian Basin. Meanwhile, oil market analysts forecast a tighter market in the third quarter. “With oil inventories starting to decline due to solid demand and limited supply growth, investors are starting to build oil exposure again,” Giovanni Staunovo, commodities analyst at UBS, wrote in a note Thursday. He predicted that Brent crude would reach $90 a barrel this quarter. Several financial names also made the list, including CME Group and JPMorgan. The former has a dividend yield of 2.34%, while the latter yields 2.25%. In addition to regular dividends, CME Group has also paid special dividends in the past. At the end of 2023, it pays a special dividend of $5.25 per share and at the end of 2022, it pays a dividend of $4.50 per share. CME Group shares are down 7% year to date, while JPMorgan is up 20%. Although real estate is the S&P’s only sector this year — down more than 4% — real estate investment trusts are generally known for their dividends. Prologis, which yields 3.35%, is one name that UBS likes. In a separate note at the end of June, UBS analyst Jonathan Woloshin pointed out that Prologis is the largest owner of industrial property in the world – and that the industrial sector remains strong. “PLD has a four-prong operating model that includes owned and operated real estate, development, profit potential for Business Essentials and strategic capital management that provides a variety of potential ways to create value,” he said. Prologis shares are down nearly 14% so far this year. Utilities are also generally known for their predictable dividends. While the sector has soared this year, Sempra is trading at a discount. The stock, which yields 3.26%, is up fractionally for the year. Sempra announced in late June that it had secured an unprecedented deal to supply liquefied natural gas to state oil giant Saudi Aramco. It also increased its capital plan to $48 billion to finance initiatives, such as grid modernization, Sempra CEO Jeffrey Martin told CNBC’s Jim Cramer in February. “The $48 billion record capital plan really creates a roadmap for future growth and should support rate-based growth in our utilities between 9% and 10%,” he said on “Mad Money.” – CNBC’s Melissa Repko and Spencer Kimball contributed reporting.