With the market rallying to 2016 highs, the question for investors is the same one faced every time this happens: What now? After two brutal 10% or more sell-offs in less than a year, and a mountain of reasons for stocks to take a breather, one idea still makes good sense. Buy the top-rated dividend stocks, and to enhance the income potential even more, sell covered calls on your holdings.

A recent Jefferies research report listed of the current holdings in the firm’s Franchise Picks portfolio. These are the top high-conviction stocks ideas that the company presents to institutional and high net worth clients. All are rated Buy, and we screened the list for the stocks paying the highest dividends. Four make good sense for investors now.

AT&T

This company had an outstanding first quarter from a stock price standpoint and could be poised to go higher. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, 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.

With its shares trading at a very cheap 12.5 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.

AT&T has been focusing on the IP VPN and Ethernet services. This outstanding business model, along with the decline of Verizon’s market share in the arena, has helped the company meaningfully grow its revenues from strategic business services. Apart from taking appropriate technical measures, the company has collaborated with big cloud service providers like Amazon Web Service and data center operators to provide Ethernet connections.

Some top Wall Street analysts lowered first-quarter postpaid net addition estimates substantially, and current quarterly earnings estimates are posted at $0.69 per share, with others expecting the company to post lower handset expenses. AT&T is expected to report earnings April 26th.

AT&T investors receive a huge 4.93% dividend. The Jefferies price target for the stock is $40, and the Thomson/First Call consensus estimate is $39.07. Shares closed Tuesday at $38.92.

AbbVie

This is the top global pharmaceutical stock at Jefferies. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries.

One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which generated $14 billion in sales in fiscal 2015. That was the most any drug has recorded during a single year and represents a gigantic part of the company’s overall earnings. The problem is that biosimilars and generics are itching to enter the market with Amgen leading the charge.

Some Wall Street analysts project that AbbVie may have a difficult time stopping that trend. Jefferies has become much more positive on the stock and feel that the company’s response to the Coherus inter partes review (IPR) on key Humira patents looks solid and an IPR denial is a very real possibility.

Back in January, senior management at the company gave sales guidance that calls for Humira sales to climb, rather than shrink, to $18 billion by 2020. If so, then AbbVie still has time to build momentum for other drugs that can offset any future impact from biosimilars, which, again, many on Wall Street feel could not challenge the strong AbbVie patents.

AbbVie investors receive a 3.8% dividend. The $80 Jefferies price target is among the highest on Wall Street. The consensus target is $71.35, and shares closed Tuesday at $60.17.
Boeing

This top aerospace industrial is down almost 8% since the beginning of the year. Boeing Co. (NYSE: BA) designs, develops, manufactures, sells, services and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services worldwide.

Top Wall Street analysts have increased confidence in continuing good demand, and they note that the company has made announcements in the past that support the thesis that productivity and margins will continue to improve. 787 execution is good as the company works through the backlog, and cash flow looks to be strong with 787 deliveries and C-17 orders. Some Wall Street analysts also point to low oil prices as a bullish indicator for the top carriers who are Boeing’s big customers.

Investors receive a 3.30% dividend. Jefferies has a $165 price target, and the consensus target is $137.95. Shares closed on Tuesday at $132.68.

Pfizer

This is also a top global pharmaceutical pick at Jefferies. Pfizer Inc. (NYSE: PFE) has a very strong pipeline, and being the world’s largest drug manufacturer by sales value supports the Wall Street notion that the company can generate higher long-term revenues through the accelerated growth of its new drugs over the next five years.

The Treasury Department announced new rules for corporate tax inversions, which effectively scuttled Pfizer’s deal with Allergan. With the deal over, not only are the risk arbitrage funds buying the stock back, but some felt there was as much as a $5 weight on the stock. The Jefferies analysts feel that investors can once again focus on the sum-of-the-parts story, which they feel is very compelling.

Pfizer has 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. Hedge funds seem to like the stock as a total of 22 own it now.

Pfizer investors receive a 3.65% dividend. The Jefferies price target is $39, and the consensus target is $38.05. Pfizer closed Tuesday at $33.89.

Even with the market trading at 2016 highs, all these stocks are not, and they make good sense for investors looking for solid total return potential. With earnings for all still set to come out, investors may want to buy partial positions and wait to see how the results are.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.