With oil plunging, and the market reeling from what should prove to be extremely good news for consumers, many investors are in a quandary over which path to take for 2016. One option that looks like it will make good sense is buying solid growth companies that pay dividends. Dividend stocks lagged badly in 2015 as the market continued to fret over the first Federal Reserve rate increase. With that increase all but assured next week, the headline risk from it will go away.
The team at Merrill Lynch that runs the company’s US 1 portfolio has selected numerous companies that not only have solid growth potential, but pay good and regular dividends. We screened the list for the stocks paying a dividend higher that the 10-year U.S. Treasury, which currently sits at a 2.25% yield.
ConocoPhillips
This company may offer investors some of the best total return possibilities, and Merrill Lynch sees it as a top yield play and recently added it to the US 1 list. 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 still 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. 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. The chairman said recently that Conoco expects oil prices to start to move higher late next year.
Conoco investors receive a very strong 6.13% dividend. The Merrill Lynch price target is a whopping $77. The consensus price target is much lower at $62.42. Conoco closed Tuesday at $48.30 per share.
Eli Lilly
This stock checks in high on the global pharmaceutical lists at many top Wall Street firms. Eli Lilly and Co. (NYSE: LLY) is a global health care company with numerous core products in a number of primary-care pharmaceutical markets. It generates revenues from its pharmaceutical product and animal health segments. The product portfolio includes Zyprexa (for schizophrenia and bipolar disorder), Gemzar (pancreatic cancer), Evista (osteoporosis), Cymbalta (depression), Cialis (erectile dysfunction), Strattera (attention deficit hyperactivity disorder), Erbitux (cancer) and Alimta (chemotherapy). Eli Lilly also has a strong presence in the diabetes market.
Its third-quarter earnings came in above the consensus estimates, but revenues fell short, reflecting some potential generic competition for Cymbalta and Evista in the United States and some negative currency movement. Trajenta, Strattera, Forteo and the animal health business should all help to offset the impact of genericization of former top-selling drugs.
The company’s Cyramza won FDA approval for label expansion recently. It treats patients suffering from metastatic colorectal cancer. This was the fourth Cyramza approval in a year; it already has approval to treat advanced or metastatic gastric or gastroesophageal junction adenocarcinoma and metastatic non-small cell lung cancer. Cyramza has so far generated sales of over $67.5 million.
Merrill Lynch and other analysts love the company’s product pipeline and point to its Solanezumab drug for Alzheimer’s Phase 3 data, which had positive clinical results reported in late July, and Jardiance, the company’s drug for diabetes, which posted very positive clinical results.
Shareholders receive a solid 2.36% dividend. Merrill Lynch has a $104 price target, and the consensus target is $98.53. Shares closed Tuesday at $86.41.
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Qualcomm
This top technology stock has underperformed this year but is still a member of the Merrill Lynch US 1 list. Qualcomm Inc. (NASDAQ: QCOM) also is still a Wall Street favorite, and many are sticking to their guns, basically saying that trading at current levels, with the stock at just over 10 times estimated 2016 earnings, it may be a tremendous long-term value. Qualcomm is a quality tech company with recurring royalty revenue and a strong footprint, so patient investors may fare very well.
The company reportedly is losing chip business, and activist investor Jana Partners has pressured the company to spin off its chip business for some time. Jana also wants Qualcomm to continue to cut costs, accelerate a share buyback, improve disclosures and refresh its board, which it accomplished when two new directors were added last summer. Jana is one of the company’s largest shareholders, with a reported $2 billion stake.
The growth of 3G mobile technologies in emerging markets, like China and India, has had a positive impact on Qualcomm and could be a difference maker going forward. Qualcomm is and has been for years a market leader in the development of 3G CDMA (Code Division Multiple Access) technologies. It recently developed an LTE chipset that supports SCDMA (Synchronous Code Division Multiple Access) technology. China’s mobile network runs on this, and it could provide the company with a huge leg up in years to come. The company signed a big licensing deal recently in China that gave the stock a solid boost.
Qualcomm investors receive a 3.88% dividend. Merrill Lynch has a mammoth $75 price target, and the consensus target is lower at $64.15. Shares closed Tuesday at $49.48.
Verizon Communications
This top telecommunications company recently did away with some phone incentives. Verizon Communications Inc. (NYSE: VZ) is a global leader in delivering the digital world. Verizon Wireless operates America’s most reliable wireless network, with 109.5 million retail connections nationwide. Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.
Wall Street has applauded Frontier’s acquisition of Verizon’s wireline operations in California, Florida and Texas, which is expected to be completed at the end of March 2016. Many feel that focusing on the higher margin segments at Verizon makes sense, and the sale is a huge cash boost to the balance sheet.
Verizon investors receive a massive 4.95% dividend. The Merrill Lynch price target is $55, while the consensus price objective is $50.27. Shares closed Tuesday at $45.70.
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These are best of both worlds for investors, four solid growth companies that all pay outstanding dividends. While not suitable for all portfolios, these blue chips are good for almost any investors with a slight risk tolerance and a long-term horizon.
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