Investing

With Markets Trading Near All-Time Highs, These 4 Dividend Stocks Look Safe

Lee Jackson

Published: July 11, 2016 8:15 am

Last Updated: January 13, 2020 5:53 am

After a blistering sell-off following the Brexit decision, the S&P 500 has rallied back to within a few points of all-time closing highs. Combine that with interest rates at historical lows, and investors have been put in a very difficult position: buy here and look for a break-out, sell and hope that earnings take things down to a cheaper entry level, or hold and hope for the rest of the year.

We screened the Merrill Lynch research database looking for blue chip dividend stocks that still make sense in a very pricey market. We also looked to avoid the overbought bond proxy sectors like the utilities and consumer staples. We found four that still look reasonable, and offer investors a degree of safety in what could be a volatile rest of 2016. All are rated Buy at Merrill Lynch.

General Electric

This iconic blue chip industrial has been on a strong roll, and the currency tailwinds may help to continue the winning ways. General Electric Co. (NYSE: GE) is a highly diversified, global industrial corporation. Its products and services include power generation equipment, aircraft engines, locomotives, medical equipment, appliances, commercial leasing and personal finance. Wall Street analysts feel that the American giant will be a large player in the efficient energy field.

The company posted solid first-quarter numbers that were somewhat hampered by slower organic growth. GE does an estimated 52.9% of its total sales overseas, so a weaker dollar surely could help the rest of this year and into 2017.

Trading sideways since November of last year, the shares could be ready to break out.

GE investors are paid a 3.0% dividend. The Merrill Lynch price target for the stock is $33, and the Thomson/First Call consensus price objective is $33.17. Shares closed Friday at $32.20.

General Motors

This company is in the automobile sector, and shares look to be very inexpensive at current levels. Despite all the recall troubles and litigation issues, hedge funds and mutual funds are continuing to stick with General Motors Co. (NYSE: GM), as many view the stock as very undervalued. GM trades just below ad incredible 5.75 times estimated 2016 earnings. The company, like competitor Ford, has benefited from incredible sales in China to boost revenue. GM invested heavily in China decades ago, and it grabbed a big chunk of what is now the world’s largest auto market.

With the company facing continued possible punitive damages over ignition switches, there will continue to be a headline risk cloud over the stock. Long-term patient investors that can look beyond current issues may stand to make outstanding money on the auto giant, especially as the oil price plummet and low gasoline prices continue to push new buyers into showrooms.

The company reported very solid first-quarter earnings back in April, and with gas prices still at the lowest levels in years, and GM producing some of the best new models in years, the future for the battered stock looks very good.

GM investors receive an outstanding 5.12% dividend. Merrill Lynch has a strong $42 price target for the stock. The consensus target is much lower at $37.06. Shares closed most recently at $29.66.
Halliburton

Shares of this company have ticked higher since the deal with Baker Hughes fell through due to regulators concerns, but they are still down almost 50% from highs printed two years ago. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. The company serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.

The oil field giant announced last year a $1 billion investment to develop huge potential oil fields in Ecuador and it has entered into a long-time deal with Petroamazonas, an Ecuador-based company involved in the exploration and development of the country’s oil reserves. With the price of oil being absolutely demolished over the past year, this top oil service company is a great stock to buy on sale, as the oil recovery has shown some legs.

Top Wall Street analysts see the end of the Baker Hughes deal as removing uncertainty on the company, and they also think that the company still has acquisition possibilities, which could help expand the business footprint.

Halliburton investors are paid a 1.65% dividend. The Merrill Lynch price target is posted at $53, and the consensus price target is lower at $45.48. The shares closed Friday at $45.03.

Southwest Airlines

This company continues to expand routes, and remains a low cost leader, it is also one of the top airline pick across Wall Street. Southwest Airlines, Inc. (NYSE: LUV) continues to increase the footprint and brand awareness all over the country. With the domestic market showing reasonably good strength, and the pricing environment looking very solid for the rest of 2016 and through next year, revenues should stay strong and continue to grow. Jet fuel prices which still remain much lower than in past years, is almost 30% of Southwest’s total costs and have been a key for improving revenues and earnings. With almost no international business at this time, currency headwinds are not an issue for the airline.

Based on the U.S. Department of Transportation’s most recent data, Southwest Airlines is the nation’s largest carrier in terms of originating domestic passengers boarded. The company operates the largest fleet of Boeing aircraft in the world, the majority of which are equipped with satellite-based Wi-Fi providing gate-to-gate connectivity.

Southwest shareholders receive a 1.0% dividend. The Merrill Lynch price target is a whopping $56, while the consensus target is lower at $52.58. The stock closed most recently at $40.54.

All these stocks are leaders in their respective sectors, and all four still offer investors decent value at current trading levels. With earnings starting in earnest this week, it makes sense to take a partial position now and see how the second-quarter results are.