These 3 Dividend Stocks Should Do Great When the Fed Raises Rates in December

By Lee Jackson Updated Jan 13, 4:57PM EST · Published Nov 20, 8:25AM EST

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These 3 Dividend Stocks Should Do Great When the Fed Raises Rates in December — © Thinkstock

With the recent Federal Reserve commentary out for all to see, unless something earth-shattering happens in the next 30 days, it sure looks like the Fed will raise interest rates for the first time in more than eight years. In fact, the markets actually have cheered the hike this week with some of the strongest rallies in months, as the overhang of when the liftoff begins is removed, and evidence of a strengthening economy is starting to show up.

A new Merrill Lynch research report says the market has spoken, and the Fed is free to start the hikes in December. Like we have mentioned previously, the increase will be very small and very slow. The December increase should be 25 basis points, or one-quarter of 1%. Merrill Lynch says that energy, materials and financials typically are the best performing. We screened the Merrill Lynch research universe for one top stock rated Buy and that pays a solid dividend from each sector.

ConocoPhillips

This company may offer investors some of the best total return possibilities. The Merrill Lynch analysts see it as a top yield play and it is on firm’s US1 list. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids worldwide. Its portfolio includes shale and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and exploration prospects.

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 Basin.

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While the company reported a third-quarter loss recently, 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.

Conoco investors receive a very strong 5.47% dividend. The Merrill Lynch price target on the stock is a whopping $77. The consensus price target is lower at $62.38. Conoco closed Thursday at $53.56.
Wells Fargo

This large cap bank is another stock for investors to look at now for safety and dividends. Wells Fargo & Co. (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.8 trillion in assets. It provides banking, insurance, investments, mortgage and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the Internet and mobile banking, and it has offices in 36 countries to support customers who conduct business in the global economy. Wells Fargo serves one in three households in the United States.

Wells Fargo has slowly but surely become one of the biggest mortgage lending companies in the United States, in addition to its normal banking and brokerage businesses. A continued increase in commercial real estate lending could really boost the bank’s bottom line. The analysts feel that could aid a big return in capital to shareholders. The stock also remains a top Warren Buffett holding.

The Merrill Lynch team likes the stability, yield and some asset sensitivity that the big bank offers, and investors looking to add financials to their portfolio could do well buying shares, knowing that the bank has little exposure outside of the United States.

Wells Fargo shareholders receive a solid 2.75% dividend. The $58 Merrill Lynch price target is about the same as the consensus target of $58.75. Shares closed Thursday at $55.97.

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Nucor

This top steel company could do very well if the economy sees a solid 2016 pickup. Nucor Corp. (NYSE: NUE) and its affiliates are manufacturers of steel products, with operating facilities primarily in the United States and Canada. The company is North America’s largest recycler.

Nucor products include: carbon and alloy steel — in bars, beams, sheet and plate; steel piling; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; steel grating and expanded metal; and wire and wire mesh. Through the David J. Joseph Company, Nucor also brokers ferrous and nonferrous metals, pig iron and HBI/DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap.

While the residential construction market could slow some in 2016 after years of a very torrid pace, the Merrill Lynch analysts remain positive on non-residential commercial construction. Nucor always has kept a very conservative balance sheet and is poised for slow, but steady growth next year and beyond.

Nucor investors are paid a very solid 3.55% dividend. The Merrill Lynch has a $52 price objective, and the consensus target is $50. The stock closed Thursday at $41.81.

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The mere fact that the Fed finally will raise rates, and it probably will assure the markets of a very slow and gradual path, is a huge talking point off the table. While there is always something that keeps Wall Street scratching its proverbial head, this issue should finally be put to bed.

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.