3 Dividend Stocks to Buy When the Dollar Rally Continues on Fed Rate Increase

Investing

Published: November 23, 2015 11:10 am

Last Updated: January 13, 2020 4:52 pm

The inevitable finally seems to be right around the corner. Barring some huge geopolitical storm in the next three weeks, the Federal Reserve is expected to raise interest rates for the first time in over eight years on December 16th. With that expectation in mind, and combined with a stronger U.S. economy, the mighty U.S. dollar should also continue its march higher. While that may be difficult for multi-nationals with significant business overseas, it could be a non-issue to companies that do the bulk of their business here at home.

24/7 Wall St. screened the Merrill Lynch research data base for stocks that were rated Buy, and did the majority, if not all of their business and revenues in the United States. For investors concerned about a rising dollar pinching overseas profits, these may be the perfect stocks to add to a growth portfolio.

AT&T

This company posted very solid third quarter numbers, and many on Wall Street think the fourth quarter will be good as well. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV. The company has TV customers in the U.S. and 11 Latin American countries. In the U.S., the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE. The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions.

Trading at a very cheap 11.7 times estimated 2016 earnings, the company continues to expand their user base, and strong product introductions from smart phone vendors has not only driven traffic, but increased device financing plans.

AT&T posted outstanding third-quarter results last month 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 are paid an outstanding 5.6% dividend. The Merrill Lynch price target for the stock is set at $40, and the Thomson/First Call consensus estimate is at $37.12. Shares closed Friday at $33.66.

Southwest Airlines

This company is expanding routes and remains a preeminent low-cost leader. Southwest Airlines, Inc. (NYSE: LUV) continues to increase the footprint and brand awareness all over the country, operates more than 3,600 flights a day, serving 97 destinations across the United States and seven additional countries. Based on the U.S. Department of Transportation’s most recent data, Southwest Airlines is the nation’s largest carrier in terms of originating domestic passengers boarded. The Company operates the largest fleet of Boeing aircraft in the world, the majority of which are equipped with satellite-based WiFi providing gate-to-gate connectivity. With the domestic market showing reasonably good strength, and the pricing environment looking very solid for the rest of 2015 and through next year, revenues should stay strong and continue to grow.

Jet fuel prices which remain much lower than in past years is almost 30% of Southwest’s total costs, have been a key for improving revenues and earnings. With very limited international business at this time, currency headwinds are not an issue for the airline.The Merrill Lynch team met with company management recently and questions were focused on revenue and unit costs as some capacity comes down next year. The remained very positive on the company and raised their 2015 and 2016 earnings by 2% to 4% on slightly better revenues.

Southwest shareholders are paid a 0.65% dividend. The Merrill Lynch price target is at $56, and the consensus is lower at $53.54 The stock closed Friday at $47.32.

Wells Fargo & Co.

This large cap bank is another stock for investors to look at now for safety and dividends. Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.8 trillion in assets. The company provides banking, insurance, investments, mortgage, and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the internet and mobile banking, and 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 their normal banking and brokerage businesses. A continued increase in commercial real estate lending could really boost the bank’s bottom line. Which the analysts feel could aid a big return in capital to shareholders. The stock 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, and also knowing that the bank has little exposure outside of the U.S.

Wells Fargo shareholders are paid a solid 2.7% dividend. The Merrill Lynch price target is posted at $58, and the consensus is at $58.75. Shares closed Friday at $55.82.

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These three stocks are ideal for growth and income accounts looking to add safe blue chips, at least that is what the Merrill Lynch reports would indicate. The fact that these companies all do most of their business in the United States is an additional plus if the dollar continues to spike higher.

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