Jefferies Franchise Pick Stocks to Buy That Also Pay Big Dividends

By Lee Jackson Updated Oct 12, 11:40AM EDT · Published Oct 12, 10:15AM EDT

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Every firm we cover on Wall Street has a short list of the stocks that they like best. Usually the lists are comprised of companies that the firms feel have a substantial upside to the current trading level. It is always a big benefit when the top stocks picks also pay shareholders a solid dividend. Dividends added to share price appreciation is called total return.

A new Jefferies research report presents the 19 stocks that make up the firm’s Franchise Picks list. We screened the list for the stocks that pay the highest dividends and came up with four that make good sense for growth and income investors now. All of course, are rated Buy at Jefferies.

AT&T

This company posted solid second-quarter numbers, and many on Wall Street think the third quarter will be good as well. AT&T Inc. (NYSE: T) is clearly one of the most ignored dividend plays on Wall Street. In fact, AT&T continues to be one of the most under-owned securities by active fund managers, according to Wall Street data. While growth has been admittedly slower over the past few years, the company continues to expand its user base. Also, strong product introductions from smartphone vendors have 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.

Late last month AT&T reiterated 2015 guidance for double-digit revenue growth and continued consolidated margin expansion. Management expects capital spending to increase sequentially and they also estimate that free-cash-flow could be better than $4.5 billion. Third-quarter wireless subscriber additions are also expected to come in slightly higher than many Wall Street estimates, and DirecTV saw positive video additions where many expected losses.

AT&T investors are paid an outstanding 5.67% dividend. The Jefferies price target is $40, and the Thomson/First Call consensus estimate is $37. Shares closed Friday at $33.14.

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AbbVie

This top global pharmaceutical stock also is a Jefferies franchise stock pick. AbbVie Inc. (NYSE: ABBV) is a research-based biopharmaceutical company formed in 2013 following separation from Abbott Labs. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries

With numerous clinical read-outs for the stock over the rest of 2015, many on Wall Street think that over time the stock could have anywhere from $15 to $25 per share upside from current levels. Many analysts feel that investors may not fully appreciate the earnings power of the company, even with a biosimilar Humira, given the incredible pipeline, the Pharmacyclics deal and an ability to adjust the cost structures.

Jefferies expects several updates on the Humira franchise in 2015, including more visibility on the issued and pending patent estate for Humira and an update on the clinical profile of “New Humira,” which is expected to launch in the last half of 2015. European Union approval is expected by the end of this month.

AbbVie investors are paid a very solid 3.70% dividend. The Jefferies price target is $90, among the highest on Wall Street. The consensus target is much lower at $75.64. Shares closed Friday at $55.64.

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Pfizer

This top pharmaceutical stock is another top global pick and Franchise List member. Pfizer Inc. (NYSE: PFE) rocked Wall Street this year announcing a gigantic $15.2 billion purchase of Hospira, a top provider of sterile injectable drugs — including those used for acute care and cancer treatment — infusion technologies and biosimilars.

In other recent solid news for Pfizer, its drug Ibrance was approved for advanced breast cancer by U.S. regulators more than two months ahead of schedule, letting the drugmaker proceed with one of its most promising new blockbusters, a turn-of-events that Wall Street likes.

The Jefferies analysts called the early approval for Ibrance, and estimate that Ibrance will generate 2015 fiscal year revenues of $613 million, versus $397 million in First Order consensus. Despite other competing breast-cancer drugs that could come to the market soon, Ibrance is projected to see sales of a monstrous $5 billion by 2020, and may one day even reach $10 billion in annual sales.

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With a strong pipeline and the fact that Pfizer is the world’s largest drug manufacturer by sales value, many analysts feel the company can generate higher long-term revenues through the accelerated growth of its new drugs over the next five years, with Ibrance leading the way.

Pfizer investors are paid a solid 3.37% dividend. The Jefferies price target is $45. The consensus target is $39.33. Pfizer closed Friday at $33.24.

Prudential Financial

This top financial services and insurance company also makes the Franchise Picks list. Prudential Financial Inc. (NYSE: PRU) has more than $1 trillion of assets under management as of December 31, 2014, with operations located in the United States, Asia, Europe and Latin America. Prudential’s strong and diverse sales force helps individuals and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management.

The company reported second-quarter earnings that beat Wall Street’s estimates. Revenue rose by 12% year-over-year, also exceeding consensus estimates. Prudential is also is on track for an estimated $1 billion in buybacks for 2015, and an estimated $1.5 billion for next year.

Prudential shareholders are paid a 3.0% dividend. The Jefferies price target is $100, and the consensus target is $97.24. Shares ended Friday at $78.09.

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The Jefferies Franchise picks with solid dividends are perfect for long-term accounts that like to employ a buy-and-hold strategy. They are market leaders, pay solid dividends, are less volatile and won’t be threatened by competition anytime soon.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.