4 Top Merrill Lynch Buy-Rated Stocks That Yield 5% or More

Investing

Published: August 4, 2016 9:50 am

Last Updated: January 13, 2020 4:56 am

There is one thing that has become desperately clear to most everybody on Wall Street, rates are going nowhere any time soon, and possibly not until next year if any bad economic numbers start hitting the tape. With 30% of all sovereign debt around the world with negative yields, and the rest just barely over the breakeven level, many people are looking far and wide for any sort of reasonable yield.

We screened the Merrill Lynch research database looking for stocks that were rated Buy and had a yield of more than 5%, and we found four that make good sense for investors with a touch more risk tolerance.

GameStop

This top retailer looks to benefit from new releases. GameStop Corp. (NYSE: GME) operates as an omnichannel video game retailer. It sells new and pre-owned video game hardware; physical and digital video game software; pre-owned and value video game products; video game accessories, such as controllers, gaming headsets, memory cards and other add-ons for use with video game hardware and software; and digital products, including downloadable content, network points cards, prepaid digital and subscription cards and digitally downloadable software.

The company also sells mobile and consumer electronics, including smartphones, tablets, headphones and accessories, as well as pre-owned smartphones; personal computer (PC) entertainment software in various genres, including sports, action, strategy, adventure/role playing and simulation; and strategy guides, magazines and gaming-related toys. As of January 30, 2016, it operated approximately 7,117 stores in the United States, Australia, Canada and Europe. GameStop primarily offers its products under the GameStop, EB Games and Micromania names.

Leading Wall Street analysts feel that hardware updates and the holiday release slate this year should help the gaming segment. In addition, the second-half hardware refreshes and fourth-quarter high-quality product releases could help drive traffic to the stores. We recently covered its benefits from the recent Pokémon craze and also the company’s big expansion plans.

GameStop investors are paid a large 5% dividend. The Merrill Lynch price target for the stock is $35, and the Wall Street consensus price objective is $34.90. Shares closed Wednesday at $29.64.

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 an incredible 5.67 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.

The stock was hit hard this week as Ford missed estimates and much of the blame was placed on incentives, which have been much lower at GM. Long-term patient investors that can look beyond current issues may stand to make outstanding money on the auto giant, especially as low gasoline prices continue to push new buyers into showrooms.

The company reported very solid second-quarter earnings, and with gas prices staying 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 are paid an outstanding 5.03% dividend. Merrill Lynch has a $42 price target. The consensus price target is set at $36.69. Shares closed Wednesday at $30.24.
Royal Dutch Shell

This company survived last year’s the plunge in oil pricing plunge as good as or better than any other major integrated stock. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and natural gas liquids.

Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.

In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.

Royal Dutch Shell investors are paid a huge 6.42% dividend. The Merrill Lynch price target is $58, but no consensus price target was posted. Shares closed most recently at $49.77.

Windstream Holdings

This telecommunications company has solid dividend coverage and could have sizable upside as well. Windstream Holdings Inc. (NYSE: WIN) is the sixth-largest U.S. incumbent local exchange carrier and the third-largest rural ILEC, serving 3 million access lines, primarily in small markets and rural communities in 16 states. The company offers residential and business customers local voice, long distance, internet access, high-speed data and enhanced services.

The company has been divesting its holdings in Communications Sales and Leasing and recently sold a 50% position, which came to 14.7 million shares. The company is using the proceeds to reduce debt, which the Merrill Lynch analysts feel could be as much as $670 million. The interest expense also will drop dramatically.

Windstream investors receive a nice 6.44% dividend. The $16 Merrill Lynch price target is well above the consensus target of $9.02 and Wednesday’s closing price of $8.99.

Four top stocks that are a touch more growth portfolio oriented and that also deliver a top dividend payout. All makes sense now in our “lower for longer” dividend world.

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