Investing
Merrill Lynch Has 4 Stocks to Buy With Dividend Yields of 7% to 9%
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Despite almost everybody on the planet knowing that eventually the Federal Reserve will start raising rates on a consistent basis, yields on the current Treasury bonds are the lowest they have been since March of last year, and lower than the crisis situation in 2008. So what are investors who are looking for dividends to do in low-yield environment that could remain this way for some time?
One good way is to look for solid companies that are rated Buy and have consistently paid out large dividends or distributions, and that don’t throw investors into a cauldron of instability. We screened the Merrill Lynch research database and found four stocks that yield more than 7% and make good sense for investors looking for income. All are rated Buy.
Frontier Communications
This is a rural local exchange carrier that Merrill Lynch has remained positive on. Frontier Communications Corp. (NASDAQ: FTR) offers broadband, voice, video, wireless internet data access, data security solutions, bundled offerings, specialized bundles for residential customers, small businesses and home offices and advanced business communications for medium and large businesses in 28 states. Its approximately 17,800 employees are based entirely in the United States. Wall Street analysts note that the company has taken broadband share in almost 80% of operating markets last year.
The company’s $8.5 billion acquisition of Verizon’s wireline operations that were providing services to residential, commercial and wholesale customers in California, Florida and Texas are a huge difference maker when it comes to the Merrill Lynch 2016 and 2017 estimates. The analysts increase 2016 EBITDA numbers from $2.129 billion to $3.751 billion. The 2017 EBITDA numbers go from $2.121 billion to $4.308 billion. The company is expected to report earnings in early May. The analysts also feel that company will be generating cash flow to cover the large dividend by more than two times.
The company reported a better than anticipated first-quarter EBITDA number and guided in line to ahead of Wall Street estimates on post-Verizon deal cash flow. Frontier is the highest yielding non-energy component in the S&P 500.
Frontier investors receive a huge 8.3% dividend. The massive $9 Merrill Lynch price target for the stock compares to the Thomson/First Call consensus target of $6.07. The stock closed Friday at $5.12.
Genesis Energy
This company actually missed first-quarter numbers but remains a Merrill Lynch favorite. Genesis Energy L.P. (NYSE: GEL) operates in the midstream segment of the industry in the Gulf Coast region of the United States. Its Onshore Pipeline Transportation segment transports crude oil and carbon dioxide (CO2). This segment owns four onshore crude oil pipeline systems with approximately 500 miles of pipe located primarily in Alabama, Florida, Louisiana, Mississippi, and Texas, as well as two CO2 pipelines with approximately 270 miles of pipe.
The company’s Offshore Pipeline Transportation segment transports crude oil and owns various offshore crude oil pipeline systems with approximately 1,200 miles of pipe located offshore in the Gulf of Mexico.
The Refinery Services segment processes high sulfur gas streams to remove sulfur for refineries. It provides services to 10 refining operations located primarily in Texas, Louisiana, Arkansas, Oklahoma and Utah, and it sells the by-product sodium hydrosulfide and caustic soda to industrial and commercial companies involved in the mining of copper, molybdenum and other base metals, as well as in the production of pulp and paper.
The Marine Transportation segment offers waterborne transportation of petroleum products and crude oil in North America. It owns fleet of 71 barges, with a combined transportation capacity of 2.6 million barrels, and 33 push/tow boats. Its Supply and Logistics segment provides services primarily to Gulf Coast oil and gas producers and refineries through a combination of purchasing, transporting, storing, blending and marketing of crude oil and refined products, such as fuel oil, asphalt and other heavy refined products. This segment operates a suite of approximately 300 trucks, 400 trailers, 562 rail cars and terminals and tankage with 2.9 million barrels of storage capacity in various locations along the Gulf Coast.
Genesis shareholders are paid a 7.05% distribution. The Merrill Lynch price target for the stock is $42, and the consensus price objective is $40.25. The shares closed Friday at $38.22.
NuStar Energy
This is a master limited partnership (MLP) that investors looking for income may want to consider. NuStar Energy L.P. (NYSE: NS) is one of the largest independent liquids terminal and pipeline operators in the nation. It currently has approximately 8,700 miles of pipeline and 79 terminal and storage facilities that store and distribute crude oil, refined products and specialty liquids.
The partnership’s combined system has approximately 93 million barrels of storage capacity, and NuStar has operations in the United States, Canada, Mexico, the Netherlands (including St. Eustatius in the Caribbean) and the United Kingdom.
The company reported solid first-quarter 2016 earnings on the back of lower operating expenses and bigger contribution from the storage segment. The bottom line beat the Wall Street consensus estimate but was down from the year-ago quarter.
Quarterly revenues came in lower than expectations and also decreased from the year-ago print. The decline in revenues was mainly attributable to lower throughput volumes from the pipeline segment and decreased revenues from product sales.
NuStar investors receive an 8.76% distribution. Merrill Lynch has a $51 price objective, and the consensus target is $49.56. Shares closed Friday at $51.27.
Starwood Property Trust
This top real estate company makes good sense for income investors now. Starwood Property Trust Inc. (NYSE: STWD) is an affiliate of global private investment firm Starwood Capital Group and is the largest commercial mortgage real estate investment trust (REIT) in the United States.
Its core business focuses on originating, acquiring, financing and managing commercial mortgage loans and other commercial real estate debt and equity investments. Through its subsidiaries LNR Property and Hatfield Philips International, Starwood Property Trust also operates as the largest commercial mortgage special servicer in the United States and one of the largest primary and special servicers in Europe.
The company reported solid first-quarter numbers, and Merrill Lynch has noted previously that the company is taking a more cautious approach to capital deployment in response to the increased volatility in the capital markets. The analysts felt that numbers were good considering the volatility, and they feel the earnings momentum should continue as the company accelerates deployment of capital the rest of the year.
Starwood Property investors receive an outstanding 9.88% distribution. The Merrill Lynch price target is $21.50, and the consensus target is $22.06. Shares closed Friday at $20.98.
While these are all rated Buy at Merrill Lynch, they are aggressive income ideas, and really only suited for accounts with a solid risk tolerance. It is also important to remember that MLP distributions may contain return of capital.
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