March of next year will mark the seventh anniversary of the beginning of one of the longest bull market runs in history that came out of the Great Recession lows of March 2009. While many claim that this has indeed been a secular bull market since then, the reality is that until the market blew past the double top level of 1,500 in May of 2013, we were really just filling in a monumental hole. With that in mind, the bull run is getting tired, and three very distinct signs of a market top are showing up.
A new research report from UBS makes the point that while a market meltdown is not necessarily right around the corner, much of the current data suggests we are in the late innings of this bull market move. UBS points to wild mergers and acquisitions activity — like the massive buy out of EMC by Dell — the huge swings in volatility and big intraday moves that we have seen since early summer, and the large pile of margin debt. While we are not in a recession, and valuations are not extreme like the 2000 tech implosion, the end is most likely closer than the beginning.
So what do investors do with bond yields still at historical lows? It’s time to think about selling the high-beta momentum stocks that lurk in portfolios and move to more conservative blue chip companies that pay dividends. We screened the UBS research data base for stocks that pay good dividends. Four look very attractive now.
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AT&T
AT&T Inc. (NYSE: T) has posted solid gains this year, and many on Wall Street think the fourth quarter will be good too. It 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. Trading at a very cheap 12.07 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic, but increased device financing plans, an area that many on Wall Street believe could lead to some earnings weakness.
AT&T posted outstanding third-quarter results and 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 came in higher than many Wall Street estimates, and DirecTV saw positive video additions where many expected losses.
AT&T investors receive an outstanding 5.59% dividend. The UBS price target for the stock is $42, and the Thomson/First Call consensus target is $37.04. Shares closed Tuesday at $33.63.
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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, and the company’s 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.
Altria reported adjusted earnings per share for the third quarter of 2015 that were in line with the Wall Street estimates. Earnings exceeded the prior-year quarter figure by 8.7%, backed by strong performance of the core tobacco business and the leading premium brands. To diversify away from cigarettes and cigars, Altria has expanded its portfolio into new categories like wine, e-cigarettes and a stake in brewer SABMiller, which together generated nearly 10% of its pre-excise tax revenue last quarter. With SABMiller possibly being acquired, Altria will have a huge stake in the world’s biggest beer company.
Altria investors receive an outstanding 3.91% dividend. The consensus price target is $63.71. The stock closed Tuesday at $57.85.
ConocoPhillips
This may offer investors some of the best total return possibilities and many analysts see 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. With oil looking for a bottom, and the market watching events in the Middle East, many analysts may feel more comfortable with the stock.
Many Wall Street analysts feel 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. Analysts were cautious after the company’s third-quarter earnings report, but the best may very well lie ahead. While Conoco reported a third-quarter loss, the largest U.S. independent oil company lowered its 2015 spending target in response to the lingering slump in crude prices. Solid cuts in unnecessary spending, and the possibility of increased sales of non-core assets, remain ongoing positives.
Investors are paid a very strong 5.22% dividend. The UBS price target is $53, but the consensus target is much higher at $62.38. Conoco closed out Tuesday at $56.73.
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Pfizer
This stock could be offering investors the best value at current trading levels. Pfizer Inc. (NYSE: PFE) increased its product line earlier this year with a gigantic $15.2 billion purchase of Hospira, a top provider of sterile injectable drugs, infusion technologies and biosimilars. Now the company is in talks in what would be one of this year’s biggest deals, a purchase of Allergan.
With a strong pipeline and the fact that Pfizer is the world’s largest drug manufacturer by sales value, many analysts feel it 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 announced that it is starting 20 clinical trials this year, and more soon after, on treatments to conquer cancer, as it also seeks to gain leadership in one of the hottest, and most lucrative, areas of medicine. Pfizer currently has eight approved cancer medicines, four of them launched in the past four years. It’s running late-stage patient tests on five of those drugs for additional uses and has three other drugs in late-stage testing, which is usually the last round before seeking regulatory’ approval. In addition, the company has 14 other drug programs in early stages.
Pfizer investors are paid a tidy 3.2% dividend. The UBS price target is $39, while the consensus target is $39.89. Pfizer closed Tuesday at $34.97.
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Solid growth stocks that pay good dividends make sense, especially when they all pay higher dividends than the current 30-year U.S. Treasury bond. Investors looking for growth and income can do very well owning these top companies and selling fast-money momentum stocks that will be the first to plunge in a big market downturn.
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