One good thing to do in the meantime is buy solid companies that pay good dividends, because even when the Fed does start to raise rates, it will be with very small increases and at very measured intervals. We screened the Merrill Lynch research universe database and found four companies currently rated Buy that have dividends above 7%.
Buckeye Partners
This top energy master limited partnership (MLP) traded all the way back to levels it was at in March of 2013 before finally rallying back some. Buckeye Partners L.P. (NYSE: BPL) owns and operates a diversified network of integrated assets providing midstream logistic solutions, primarily consisting of the transportation, storage and marketing of liquid petroleum products.
Buckeye is one of the largest independent liquid petroleum products pipeline operators in the United States in terms of volumes delivered, with approximately 6,000 miles of pipeline and more than 120 liquid petroleum products terminals with aggregate storage capacity of over 110 million barrels across its portfolio of pipelines, inland terminals and an integrated network of marine terminals.
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Merrill Lynch noted after solid second-quarter earnings were reported that the performance reflects the stability of the company’s cash flows in what has been and will remain a volatile pricing environment. The firm also noted the improved asset utilization and pointed to the strong refined product volumes that helped to offset lower butane blending margins. Buckeye is expected to report third-quarter earnings on Friday
Buckeye Partners investors receive an outstanding 7.12% distribution. The Merrill Lynch price objective is a monster $88. The Thomson/First Call consensus price target is $81.72. Shares closed Tuesday at $65.30.
Och-Ziff Capital Management
This top hedge fund continues to post solid earnings and has been absolutely mauled. Och-Ziff Capital Management Group LLC (NYSE: OZM) is one of the largest institutional alternative asset managers in the world, with offices in New York, London, Hong Kong, Mumbai, Beijing, Dubai, Shanghai and Houston. It provides asset management services to investors globally through its multi-strategy funds, dedicated credit funds, including opportunistic credit funds and institutional credit strategies products, real estate funds and other alternative investment vehicles.
Like many investment companies, the recent stock market turmoil has taken its toll, and the resulting sell-off in the shares offers investors an outstanding entry point. The company has been almost cut in half since June, and trading at an incredibly low five times estimated 2016 earnings,. This could be a big home run for aggressive accounts.
Och-Ziff investors are paid a tasty 7.62% dividend. The Merrill Lynch price target is $10, but the consensus target is higher at $11.28. The stock closed Tuesday at $7.03.
Starwood Property Trust
This top real estate company makes good sense for income investors now. Starwood Property Trust Inc. (NYSE: STWD) is an affiliate of global private investment firm Starwood Capital Group and is the largest commercial mortgage real estate investment trust (REIT) in the United States.
Its core business focuses on originating, acquiring, financing and managing commercial mortgage loans and other commercial real estate debt and equity investments. Through its subsidiaries LNR Property and Hatfield Philips International, Starwood Property Trust also operates as the largest commercial mortgage special servicer in the United States and one of the largest primary and special servicers in Europe.
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The company reported solid second-quarter numbers back in August, and it reiterated the full-year guidance then. The company also repurchased 400,000 shares during that quarter and increased its buyback authorization, as management views the stock as currently undervalued.
Investors are paid an outstanding 9.6% distribution. The $26 Merrill Lynch price target is higher than the consensus target of $25.31. Shares closed Tuesday at $19.99.
Windstream Holdings
This telecommunications company has solid dividend coverage and could have sizable upside as well. Windstream Holdings Inc. (NYSE: WIN) is a leading provider of advanced network communications and technology solutions, including cloud computing and managed services, to businesses nationwide. It also offers broadband, phone and digital TV services to consumers primarily in rural areas.
Windstream recently announced that it has entered into a definitive agreement with TierPoint, a leading national provider of cloud, colocation and managed services, to sell Windstream’s data center business in an all cash transaction for $575 million. The Merrill Lynch team is bullish on the company, and the transaction does help in a big way on the overall balance sheet.
Windstream investors receive a sizable 8.85% dividend. The Merrill Lynch price target is a gigantic $16. The consensus target is $7.44, and shares closed Tuesday at $6.69.
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It is important to note that MLPs and limited partnerships can distribute income that is return of capital. With that in mind, all these companies rated Buy at Merrill Lynch make sense for accounts seeking higher income that have a higher risk tolerance.
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