Investors love dividends and stock buyback plans as a means to see capital returns. What stands out about dividends, versus one-time or opportunistic buyback plans, is that they are a company’s voice of communicating strong earnings power in the years ahead. Also, more than half of investors’ total returns through time can be attributed to dividend payouts.
24/7 Wall St. has tracked the strong blue chip dividend calls made by analysts so far in March of 2016. These are not the only calls made, but the firms have made a point on these about both price appreciation and dividend growth potential.
A summary of each analyst call has been made here, as has the dividend yield and the payout ratio used to see how much dividend upside can be made ahead. These are four blue chip dividends with upside stock potential and room for dividend growth.
AT&T
Merrill Lynch has had a lot to say about AT&T Inc. (NYSE: T) of late. It recently was listed as one to buy and hold forever and was even shown to be a winner from cord-cutters. The firm’s $40 price target is among the highest on Wall Street now, and it coincided with AT&T and Verizon both hitting new 52-week highs last week.
AT&T’s yield is still north of 5%. Its payout ratio is now about 66% since it added the DirecTV earnings into its cash flow. AT&T closed on Friday at $37.93, and it has a consensus analyst target of $37.67 and a 52-week trading range of $30.97 to $38.14.
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Intel
R.W. Baird raised Intel Corp. (NASDAQ: INTC) Outperform from Neutral with a $38.00 price target just on March 3. The firm’s note stood out in that the target price was actually a $5.00 price target hike, and it compared to a prior $30.54 close and Friday’s $30.63 close. This analyst has had a Neutral rating for quite some time, and it sees a resumption of earnings per share growth despite a continued decline in the personal computer market. Another boost from the call was the notion that Intel will land a deal for the smartphone processors with a Tier-1 player, perhaps in the second half of 2016.
Intel’s consensus analyst price target has now risen to $36.16, and the 52-week trading range is $24.87 to $35.59. Intel’s 3.4% dividend yield is no longer the highest among technology giants, but it remains very attractive, and most analysts believe Intel has room to increase its payout ahead, with a normalized payout ratio of about 40% of the next two year’s earnings expectations.
Disney
Walt Disney Co. (NYSE: DIS) was recently added to Piper Jaffray’s list of Overweight stocks (raised from Neutral) with a $120 price target. What stood out here was that the analyst admitted having missed much of the growth wave in recent years, but he also said that Disney was entering the key growth phase now. Another issue brought up was that the ESPN focus is in part from people moving to skinnier bundles rather than cord-cutters, but the movies and theme parks will be the real growth. One big driver is a dividend growth, as Disney shares move from lower yields of closer to 1% to much higher in the years ahead. That yield’s low-ness is due to past massive share appreciation.
This March 3 call was against a prior $97.00 close, but the most recent close was $98.48. Disney has a consensus analyst price target of $108.93, and it has a 52-week range of $86.25 to $122.08. One thing being noticed here is that Disney’s payout ratio is now less than 25% of the expected earnings over a two-year blend ahead. Disney was also one of our stocks to own for the next decade.
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UTC
A would-be but foiled Honeywell merger had United Technologies Corp. (NYSE: UTX) in the news recently. UTC was raised to Outperform from Sector Perform with a $109 price target at RBC Capital Markets just on March 1. The call was made almost immediately before Honeywell pulled the plug on the proposed merger, but UTC already had said openly that it was too worried about antitrust issues.
This call was also versus a prior $96.62 closing price, and shares closed on Friday at $97.00. UTC had a consensus analyst price target of $104.67 at the time, and it has a 52-week trading range of $83.39 to $122.89. Even after the pop, this stock closed out solid last week. UTC pays out less than 40% of its blended two years earnings expectations, and that leaves room for its 2.6% yield to go north of 3% — if the shares stay under $100 that is.
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