We screened the Merrill Lynch universe for high-yielding blue chips that are on sale and came up with five top companies that have yields higher than 4%, and all are rated Buy at Merrill Lynch.
AT&T
This company posted solid second-quarter numbers recently. AT&T Inc. (NYSE: T) has to be one of the most ignored dividend plays on Wall Street. In fact, AT&T is the third most underweighted security, and the most under-owned by active fund managers, according to Merrill Lynch. While growth has been admittedly slower over the past few years, the company continues to expand its user base, and strong product introductions from smartphone vendors has not only driven traffic, but increased device financing plans. That is an area that many on Wall Street believe could lead to some earnings weakness.
Many on Wall Street think that finally closing the DirecTV deal will remove a lot of lingering questions, especially where the company’s big dividend is concerned. It’s a good bet that the synergies created by the deal are being underestimated by Wall Street, and many analysts see upside to wireless margins, which were a positive earnings driver in the second quarter.
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AT&T investors are paid an outstanding 5.87% dividend. The Merrill Lynch price target for the stock is $40, and the Thomson/First Call consensus price target is $37. Shares were trading Tuesday at $31.99.
Altria
The maker of tobacco products and wine has posted very solid numbers through the first half of the year, and third quarter is looking good as well. Altria Group Inc. (NYSE: MO) is a top mega-cap consumer discretionary stock to buy on Wall Street, and its Marlboro brand remains one of the most recognizable in the world.
Many Wall Street analysts concede that the stock has solid downside support owing to the generous dividend yield, which remains at a huge premium in relation to the 10-year Treasury rate. Cash flow generation and the return of cash to Altria shareholders remain key facets of the company’s total shareholder return, and the analysts expect support of the strong dividend, which they believe will continue to climb, and strong share repurchase activity.
Altria investors are paid an outstanding 4.1% dividend. Merrill Lynch has a $59 price target. The consensus target is $59.50. The stock was trading on Tuesday at $54.71.
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ConocoPhillips
This stock may offer investors some of the best total return possibilities, and Merrill Lynch sees it as a top yield play. ConocoPhillips (NYSE: COP) is a large integrated that has spent the past five years divesting assets. Although it is cash rich, it has somewhat dampened earnings and growth expectations all year long. At this juncture, with oil looking for a bottom and the market watching events in the Middle East, many analysts may feel more comfortable with the stock.
Merrill Lynch feels Conoco can accelerate growth from reloaded portfolio depth in the Bakken and Eagle Ford with visibility on future growth from a newly disclosed sizable position in the Permian. The analyst applauds the company’s recent positive earnings report, cuts in unnecessary spending and the possibility of increased sales of non-core assets.
Investors are paid a very strong 6.46% dividend. The Merrill Lynch price target is $74. The consensus target is $63.38. Shares were trading Tuesday at $50.13.
Ford
This company has the enviable position of not being the contract target this year with the United Auto Workers union. Ford Motor Co. (NYSE: F) has reshaped the company’s product line in recent years, and sales have been outstanding. With sales booming not only in the United States but in China, and six new models being introduced in Russia, the company is expanding market share, while maintaining a competitive pricing structure. Ford posted outstanding earnings for the second quarter and the analysts expect a strong second half of 2015.
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The iconic F-150 truck remains the top-selling truck in America, as well as the top-selling vehicle for the past 33 years, despite strong challenges from the competition. While consumers have bought vehicles in a big way in recent years, replacement continues as low interest rates, dealer incentives and increasing take home pay make a vehicle purchase an easy choice.
Ford investors are paid a very solid 4.6% dividend. The Merrill Lynch price target is $18. The consensus target is $17.41. Shares were trading Tuesday at $13.05.
Exxon Mobil
The world’s largest international integrated oil and gas company just reported better second-quarter revenue numbers than expected, but earnings came in below Wall Street estimates. Exxon Mobil Corp. (NYSE: XOM) is an energy sector play that Merrill Lynch is very positive on the long term as the overall corporate strength of the energy giant plays a significant part in its usually solid earnings reporting pattern.
Merrill Lynch has stressed in the past that the company’s global downstream chemical segment plays a huge part for Exxon. It may be a part that many others on Wall Street don’t fully appreciate, as the segment contributes an estimated 16% of overall total revenue. One very solid reason for adding the stock to a long-term growth portfolio is that the company consistently has demonstrated disciplined investing, operational excellence and technological innovation.
Exxon investors are paid a very sizable 4.04% dividend. The Merrill Lynch price target is $100. The consensus objective is lower at $82.53. Shares were trading on Tuesday at $72.31.
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All these large cap leaders offer investors the kind of total return that can add up to long-term gains. In addition, to enhance total return, investors can write covered calls on the positions and generate extra income. With all trading way below 52-week highs, they make good sense now.
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