Time to Sell Utilities, but Time to Buy 3 Other Great Dividends

By Lee Jackson Updated Jan 13, 5:20AM EST · Published Jul 25, 8:20AM EDT

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Time to Sell Utilities, but Time to Buy 3 Other Great Dividends — © Thinkstock

[cnxvideo id=”507734″ placement=”ros”]Well, the ride was good while it lasted, and people who have been long the utility sector have not only been paid stellar dividends, but the stocks have traded up nicely as well. But like all good things on Wall Street, this run looks over, and it makes sense, especially for investors with big gains to sell at least half of a utility position, and maybe all of it.

Typically sectors that have big outperformance, like the utilities have done, will underperform going forward on a one-month, six-month and full-year basis. Add in the fact that the utility outperformance was so great over the past year, when the selling starts, it may be far greater than usual.

We screened the Merrill Lynch research database for safe, and relatively defensive stocks that pay solid dividends. We found three that could be outstanding choices for income accounts looking to take utility gains and roll to other sectors with better upside potential.

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.

Despite reporting better than expected first-quarter results, the stock was hit as many portfolio managers were overweight consumer stocks, and the market noted that the company’s multiple had jumped higher than peers. It is important to remember though that the company own 31.5% of Monster Beverage, which continues to deliver big numbers. The company is set to report second-quarter numbers this week.

Coca-Cola investors receive a 3.05% dividend. The Merrill Lynch price target for the stock is $52, and the Wall Street consensus price target is $48.35. The stock closed Friday at $45.83.

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GlaxoSmithKline

This top global pharmaceutical could offer outstanding total return for investors as solid portfolio holding. GlaxoSmithKline PLC (NYSE: GSK) offers products in such therapeutic areas as respiratory, anti-virals, central nervous system, cardiovascular and urogenital, metabolic, anti-bacterials, emesis, dermatology, rare diseases, immuno-inflammation, vaccines and HIV. It also provides consumer health care products in wellness, oral health, nutrition and skin health areas.

Last year the company announced that the dividend would stay at its current level through 2017, a solid pledge for those seeking security. In addition, the FDA approved the company’s Nucala add-on product for severe asthma with a very broad label. In addition, its ViiV Healthcare unit also reported promising data for its HIV treatments. GlaxoSmithKline plans to submit up to 20 new regulatory filings within the next five years, which confirms a very strong pipeline.

GlaxoSmithKline investors receive an outstanding 5.11% dividend. Merrill Lynch has a $48 price target. The consensus price objective is $47. The shares closed Friday at $43.88.

Philip Morris International

This company has continued to grow global market share and makes good sense for total return investors now. Philip Morris International Inc. (NYSE: PM) is the world’s leading international tobacco company, with six of the world’s top 15 international brands and products sold in more than 180 markets.

In addition to the manufacture and sale of cigarettes, including Marlboro, the number one global cigarette brand, and other tobacco products, the company is also engaged in the development and commercialization of reduced-risk products (RRPs), the term it uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. Through multidisciplinary capabilities in product development, state-of-the-art facilities and industry-leading scientific substantiation, Philip Morris aims to provide an RRP portfolio that meets a broad spectrum of adult smoker preferences.

The company reported earnings slightly below estimates, but the full-year underlying guidance remains the same. The analysts expect the second half of the year, especially the fourth quarter, to be very solid.

Philip Morris shareholders are paid a 4.1% dividend. The $115 Merrill Lynch price target is higher than the consensus target of $105.46. But note that shares ended last week at $99.84.

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While the utility run was outstanding, it is time to start selling those stocks and looking for other vehicles to hop on. These three Buy-rated Merrill Lynch picks are outstanding places to move money to now.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.