Investing

Rates Are Really Going Nowhere Now: 4 Merrill Lynch Top Dividend Stock Buys

Lee Jackson

Published: July 5, 2016 9:35 am

Last Updated: January 13, 2020 6:05 am

If you thought the scenario for yields rising anytime soon was possible, it sure doesn’t look like it now. In fact, the five-, 10- and 30-year Treasury debt all ended the day on Friday at 52-week lows and were lower Tuesday morning. The fact of the matter is, despite their low level, U.S. sovereign debt yields are among the highest in the world in the developed nations. Plus, with the added stress of the Brexit, political rhetoric and overall uncertainty, it looks as though the Federal Reserve won’t raise rates again until 2017.

So what are growth and income investors to do with the “lower for longer” scenario hanging over the market? Look for quality companies that pay good dividends and distributions, and stay away from overpriced bond proxies like utilities, which are way overbought now.

We screened the Merrill Lynch research database and found four companies that look very tempting now and could bring investors some outstanding total return.

Intel

This leader in semiconductors is working hard to scale away from dependence on personal computers. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide. The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.

The company also provides communication and connectivity offerings, such as baseband processors, radio frequency transceivers and power management integrated circuits, and tablet, phone and Internet of Things solutions, which include multimode 4G LTE modems, Bluetooth technology and GPS receivers, software solutions and interoperability tests, as well as home gateway and set-top box components.

Intel reported an inline first quarter, and lowered the forward outlook. Merrill Lynch stays positive on the company and believes there is solid upside potential for the stock. Some analysts think the restructuring can ultimately translate to $0.23 in annual earnings-per-share savings.

Intel investors receive a very solid 3.2% dividend. The Merrill Lynch price target for the stock is $36, and the Thomson/First call consensus target is $35.43. The shares closed last Friday at $32.75.

Kohl’s

This top retailer has been pounded and could be offering investors a solid entry point. Kohl’s Corp. (NYSE: KSS) operates department stores in the United States. It offers private label, exclusive and national brand apparel, footwear, accessories, beauty and home products to children, men and women customers. The company also sells its products online at Kohls.com and through mobile devices. As of March 3, 2015, it operated 1,162 department stores in 49 states.

The company recently got a ton of free social media marketing and advertising when a Texas mom’s crazy internet post wearing a Chewbacca mask that she bought in a bargain bin at the store went incredibly viral. The clip has been seen by 135 million people as of Monday morning, making it the most watched video ever on Facebook. Kohl’s sent representatives to her house with a trove of gift cards and other items, and of course, more Chewbacca masks for the kids.

Kohl’s shareholders are paid a huge 5.27% dividend. Merrill Lynch has a $42 price target, and the consensus target is posted at $40.95. The stock closed Friday at $37.96.
Qualcomm

This top technology stock has traded sideways this year and it resides on the Merrill Lynch US 1 list of top picks. Qualcomm Inc. (NASDAQ: QCOM) is a world leader in 3G, 4G and next-generation wireless technologies.

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. The company 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 numerous big licensing deals recently in China that gave the stock a solid boost.

Qualcomm has successfully regained its position at Samsung, as the Galaxy S7/S7 Edge are powered by its Snapdragon 820 processor. The company solved all the problems, such as overheating, that were found in the Snapdragon 810 processor. While smartphone competition has been steep for the company, it has begun entering into the new market segments, such as the Internet of Things, cars, drones and data centers, that will help the company overcome some of the recent product losses and produce profits.

Qualcomm investors receive a 4% dividend. The $65 Merrill Lynch price target for the stock is well above the consensus price objective of $57.19. Shares closed Friday at $53.00.

Starwood Property Trust

This top real estate company also 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.

Starwood Property investors are paid an outstanding 9.3% distribution. The Merrill Lynch price target is $21.50, and the consensus target is at $21.89. Shares closed Friday at $20.66.

These four companies run the gamut of risk, but they all have one thing in common, solid payouts with decent growth potential. With the markets trading right near the top levels, it may be wise to buy partial positions now and see if the summer doesn’t offer up another sell-off.