Investing

Domestic Dividend Stocks the Only Place to Be: 4 to Buy With Big Revenues in the US

Lee Jackson

Published: August 5, 2016 8:35 am

Last Updated: January 13, 2020 4:54 am

Even though the markets have had a great run off the lows back in 2009, there is one item that is starting to stare investors in the face. Most of the world equity markets are very dicey as global economies are lousy and large economies like Europe and Japan are being forced to use more stimulus from either asset buying quantitative easing or dropping rates lower than they already are. Toss in the fact that the U.S. Treasury market is way overbought, and you are left with U.S. stocks as the best investment alternative.

We screened the Merrill Lynch research database looking for companies that did all or the bulk of their business in the United States. The following four pay good dividends, supply the home cooking and are rated Buy.

AT&T

This company has had an incredible run this year, and the Merrill Lynch team sees it going even higher. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE. The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions.

With its shares trading at a very cheap 14.3 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.

The company reported inline numbers for the second quarter, and while the consolidated revenue number was slightly higher than the Merrill Lynch estimate, the EBITDA was slightly below. Company management noted it is on track to meet or exceed current estimates for the year.

Many Wall Street analysts have cited the company’s positive commentary on free cash flow, in addition to improving video/broadband trends later this year, with single truck-roll and new converged offerings expected to be coming in October.

AT&T investors are paid a huge 4.5% dividend. The Merrill Lynch price target is $46, and the Wall Street consensus target is $42.27. Shares closed most recently at $43.29.

American Electric Power

This industry leader is also a solid dividend-paying company. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states. It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

Many on Wall Street feel that the stock trades at a discount to its utility peers and they feel it deserves a premium. They also think the company may sell generating assets and buy back shares with the proceeds, which will be accretive.

American Electric Power shareholders receive a 3.26% dividend. Merrill Lynch has a $72 price objective for the stock, and the consensus target is $72.85. Shares closed on most recently at $68.64.
Kroger

This top grocer does almost all of its business in the United States. Kroger Co. (NYSE: KR) operates retail food and drug stores that offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood and organic produce. It operates multi-department stores provide general merchandise items, such as apparel, home fashion and furnishings, outdoor living, electronics, automotive products, toys, and fine jewelry.

The company’s price impact warehouse stores offer grocery and health and beauty care items, as well as meat, dairy, baked goods and fresh produce items. It also operates jewelry stores and convenience stores.

The company operates under the banner brands, such as Kroger, Ralphs, Fred Meyer and King Soopers, as well as Simple Truth and Simple Truth Organic brands. As of January 30, 2016, the company operated 2,778 retail food stores, including 1,387 fuel centers; 784 convenience stores; and 323 fine jewelry stores and an online retail store, as well as franchised 78 convenience stores.

Kroger shareholders are paid a 1.5% dividend. Merrill Lynch has a $45 price target, and the consensus target is $40.14. The shares closed Thursday at $32.55.

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. Shares have been hit recently on earnings and some system glitches, giving investors a very solid entry point.

Southwest shareholders are paid a 1.1% dividend. The whopping $50 Merrill Lynch price target compares with the consensus target of $49.27 and Thursday’s closing price of $36.42.

These are clearly not the most exciting companies on Wall Street, but if you are an investor concerned about where to own shares, the United States remains the clear-cut winner as its economy and outlook are far better for stocks than most markets around the world.