UBS Makes Big May Changes to Dividend Ruler Stocks Portfolio

With the first-quarter earnings reporting season almost over, investors and many Wall Street money managers are looking out through the summer and into the fall, anticipating an increase in volatility as the presidential election heats up. Many of the top firms we cover are making changes to their top portfolios as it appears that lower volatility stocks may be in vogue as some choppy market waters could lie ahead.

A new research report from the analysts at UBS make some big changes in the firm’s Dividend Ruler Stocks portfolio. We have noted in the past that this outstanding stock list has outperformed the S&P 500 on a total return basis, as well as on a compounded annual growth rates basis, since its inception in 2003.

There is only two changes for this May report: Exxon Mobil Corp. (NYSE: XOM) was added and Schlumberger Ltd. (NYSE: SLB) was removed.

Besides being added to the portfolio, Exxon Mobil makes good sense after a solid upturn in energy stocks. The company explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa, Asia and elsewhere. It also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products. As of December 31, 2015, the company had approximately 35,909 gross and 30,114 net operated wells.

The UBS team notes that while the average company in the S&P 500 energy sector has cut its dividend by roughly 50% thus far in 2016, Exxon Mobil actually boosted its quarterly payout by two cents to $0.75 per share last month, a 3% increase. That follows a 6% increase in 2015. This just accentuates the company’s outstanding balance sheet and ability to survive and thrive in a very severe energy sector downturn.
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Exxon investors are paid a 3.4% dividend. The posted Thomson/First Call consensus price target is $84.43. Shares of Exxon Mobil closed higher than that on Friday at $88.51.

Schlumberger was removed from the list as the UBS team sees dividend growth flattening out, a component essential for inclusion. It remains the largest oilfield services company in the world for now, with far-reaching operations all around the globe, and it could be poised for years of solid growth despite the huge turn down in oil pricing.

Top Wall Street analysts think the company will continue to drive margins on execution, technologies and efficiencies. Russia, Saudi Arabia, Iraq and China are expected by some to be the strongest markets, if geopolitical concerns remain somewhat in check.

The company reported solid fourth-quarter earnings, although revenues come in slightly under Wall Street estimates. Schlumberger announced that a new share repurchase program of $10 billion was approved, as the company continues to return capital to shareholders.

Schlumberger shareholders are paid a 2.66% dividend, and the consensus price target is $87.41. The stock closed Friday at $75.12.
In addition, here are three lower volatility stocks in the Dividend Ruler Stocks portfolio that all pay a 3% or higher dividend.

Boeing

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

The company reported numbers that beat estimates, but charges weighed on the overall report. However, the company is continuing what is a sizable share buyback program. We covered the Wall Street take on the earnings in depth.

Boeing investors are paid a very solid 3.27% dividend. The consensus price target is $145.17, and the shares closed trading on Friday at $133.26.

Coca-Cola

This company remains a top Warren Buffet holding and offers not only safety, but an incredible strong worldwide brand. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.

Led by Coca-Cola, its portfolio features 20 billion-dollar brands, including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade and Minute Maid. Globally, it is the top provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks. Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy its beverages at a rate of more than 1.9 billion servings a day.

Coca-Cola investors receive an outstanding 3.09% dividend. The consensus price target is set at $48.29. The stock closed Friday at $45.32 per share.

Nordstrom

This top retailer has been hit hard and looks like a solid value play at current trading levels. Nordstrom Inc. (NYSE: JWN) is one of the leading fashion specialty retailers based in the United States. Founded in 1901 as a shoe store in Seattle, Nordstrom now operates some 260 stores in 35 states, including 117 full-line stores, 140 Nordstrom Racks, two Jeffrey boutiques and one clearance store.

Back in February, Nordstrom raised its dividend by 10%. The company’s strong square footage growth profile and best in-class e-commerce business should drive solid dividend growth going forward.

Nordstrom shareholders are paid a 3.08% dividend. The listed consensus price target for the stock is $52.52. The stock closed Friday at $48.06 per share.
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Dividend growth is as important as the size of the dividend, and in many cases more important as a metric. Strong cash flows allow companies to consistently raise their dividends, and that is what the UBS team is looking for.