Investing

Bond Bull Market Is Over: Switch to These 4 Top Dividend Stocks Now

Lee Jackson

Published: October 3, 2016 10:15 am

Last Updated: January 13, 2020 2:52 am

After years of huge relative outperformance, the long-running Treasury bond bull market is for all intents and purposes close to, if not already, over. The research team at Deutsche Bank has noticed an astounding anomaly and reported this is a new research report:

Over the past decade, the ten-year US treasury bond has delivered a six per cent annualized total return, nearly matching the seven per cent managed by the
S&P 500. The difference between the returns is half the average over the past 30 years.

What they also point out that the low capital returns from stocks in overall market returns had historically been a precursor to coming big returns and lower volatility. In addition, the higher level of dividends in recent returns for stock also bodes well for equities going forward, despite the indexes trading around all-time highs.

We screened our Wall Street research database for large cap companies rated Buy that also still pay outstanding dividends, and we found five that look like good alternatives for equity investors.

Chevron

This stock is very solid story for investors looking to stay long the energy sector, and it is a preferred U.S. company to own now. Chevron Corp. (NYSE: CVX) is an integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. It sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years.

The company’s Permian Basin assets are a goldmine, and that the Australian LNG business will transition from a yearly $8 billion capital consumption drag to a $2 billion to $3 billion contributor. Combined with the much lower overall capital spending for the 2016 to 2018 period, the company is poised to not only hang around, but end the sector slump in a much better position. The analysts note the Permian acreage is profitable at $40 a barrel.

CEO John Watson has made it clear that preserving the dividend for investors is the top priority. Wall Street analysts point out that although the company trades in line with its peers, the growth potential and solid balance sheet deserve a 10% premium.

Chevron investors receive a 4.2% dividend. Jefferies has a $118 price objective for the stock. The Wall Street consensus price target is set at $111.33. Shares closed trading on Friday at $102.92.

GlaxoSmithKline

This top global pharmaceutical could offer outstanding total return for investors as solid portfolio holding. GlaxoSmithKline PLC (NYSE: GSK) offers pharmaceutical products in the therapeutic areas, including respiratory, anti-virals, central nervous system, cardiovascular and urogenital, metabolic, anti-bacterials, and emesis, dermatology, rare diseases, immuno-inflammation, vaccines, and HIV. It also provides consumer healthcare 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. Also, 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 are paid a 5.0% dividend. The $50 Merrill Lynch price target compares with consensus price objective that is set at $48.67. The stock closed on Friday at $43.13 per share.

Las Vegas Sands

While the gaming industry has had a tough year due to issues in Macau, this stock has hung in in reasonably well, although it remains way off highs printed in 2014. Las Vegas Sands Corp. (NYSE: LVS) is the world’s leading developer and operator of integrated resorts. Its properties include the five-diamond Venetian and Palazzo resorts and Sands Expo Center in Las Vegas, Sands Bethlehem in Eastern Pennsylvania and the iconic Marina Bay Sands in Singapore.

Through majority ownership in Sands China, the company owns a portfolio of properties on the Cotai Strip in Macau, including the Venetian Macao, the Plaza and Four Seasons Hotel Macao and Sands Cotai Central, as well as the Sands Macao on the Macao Peninsula.

The stock is trading at the cheapest levels in years, and the company recently reported that June was the first month since September 2014 that Macau mass volumes and revenues have increased. While many on Wall Street remain cautious, the long-term story remains very appealing.

Las Vegas Sands investors are paid a rich 5.01% dividend. Stifel has a $56 price target for the stock. The consensus target is posted at $51.38, though the stock closed Friday above that at $57.54.

Verizon Communications

This top telecommunications company has backed up some and is offering a nice entry point. Verizon Communications Inc. (NYSE: VZ) is a global leader in delivering the digital world. Verizon Wireless operates America’s self-described most reliable wireless network, with 109.5 million retail connections nationwide. Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.

The company reported solid second-quarter earnings; however, revenues came in short of Wall Street and Merrill Lynch expectations. The analysts note that management kept guidance in line with expectations, excluding the impact of the strike related work stoppage.

Verizon also recently announced the purchase of Yahoo’s core operating business for $4.8 billion in cash. The analysts feel it plays into Verizon’s strategic drive to expand into advertising and content, and they also think the transaction is largely immaterial from a financial perspective.

Verizon investors are paid a 4.4% dividend. The Merrill Lynch price target is $59. The consensus price objective is set at $54.24. Shares closed on Friday at $51.98.

Four top companies in four very different sectors. With the 10-year Treasury yielding a puny 1.6% and the prospects for big capital gains going forward far lower than over the past 10 years, switching now looks like a good strategy.