[cnxvideo id=”625494″ placement=”ros”]It is amazing how top quality stocks that pay good dividends have been tossed out like the proverbial baby with the bath water. All this despite the fact that while the yields on U.S. Treasury bonds have risen, they are still at historical lows. In addition, while the long bull market in bonds is probably close to over, interest rate increases will be tiny, and by the end of 2018 the fed funds rates should still be well under 2%.
A recent Stifel research piece makes the case that value investors may start looking at the tobaccos stocks, as they have been unmercifully punished, with two of the biggest names in the sector both down by double digits. We also looked at the top telecom and some consumer staple companies, and found some of the best stocks also down big.
We screened the Merrill Lynch research database for top yielding stock that have been hit, and may be good companies for investors seeking yield to start nibbling on now. All are rated Buy.
AT&T
This company has had an incredible run this year but is off over 10% in less than six weeks. 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.
AT&T has several major catalysts that likely will drive strong network traffic demand: DirecTV Now and Mobile, “Data-Free TV” for DirecTV/U-verse subscribers and increasing penetration of unlimited data plans. Many on Wall Street believe that the company is well-positioned to address ongoing traffic requirements, with additional LTE capacity available and the ability to leverage small cell deployments.
Other top Wall Street analysts have cited the company’s positive commentary on free cash flow, and improving video/broadband trends later this year with single truck-roll and new converged offerings are expected to be coming next month.
Investors receive a 4.91% dividend. The Merrill Lynch price target for the stock is $46, and the Wall Street consensus price objective is $42.83. Shares closed Thursday at $39.11.
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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 second-quarter earnings that came in above some estimates, slower growth and flat volumes brought out the sellers and they tagged Coke stock big time. It is important to remember though that the company owns 31.5% of Monster Beverage, which continues to deliver big numbers.
Coca-Cola investors receive a 3.36% dividend. Merrill Lynch has a $50 price target, while the consensus target is $47.44. The stock closed Thursday at $41.71.
Las Vegas Sands
While the gaming industry has had a tough year due to issues in Macau, this stock has hung 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.
Investors receive a 4.9% dividend. The stock was just raised to Buy at Merrill Lynch with a $63 price target. The consensus target is $53, and the stock closed at $58.80.
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.
Shareholders are paid a 4.35% dividend. The $115 Merrill Lynch price target compares with a consensus target of $105.53 and the most recent close at $95.64.
Reynolds American
Reynolds American Inc. (NYSE: RAI) manufactures and sells cigarettes and other tobacco products in the United States. Its RJR Tobacco segment offers cigarettes under the Newport, Camel, Pall Mall, Doral, Misty and Capri brands, as well as Camel Snus, a smoke-free tobacco product. It also manages various licensed brands, including Dunhill and State Express 555.
The Santa Fe segment manufactures and markets cigarettes and other tobacco products under the Natural American Spirit brand. The American Snuff segment provides smokeless tobacco products, such as moist snuff under the Grizzly and Kodiak brand names.
Shareholders receive a 3.95% dividend. Merrill Lynch has a $58 price target. The consensus target is set at $55.27. The stock closed on Thursday at $46.78.
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It is important to note that these stocks were all part of a very crowded yield trade, and there could easily be more selling. The smart thing would be to scale in capital slowly through the end of the year, as another rate hike should be on tap for December.
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