Investing

Nervous Investors May Like These Stocks That Pay Huge Dividends

Lee Jackson

Published: June 19, 2017 10:10 am

Last Updated: January 12, 2020 10:56 am

You can almost feel it in the air. The market is expensive, and while today looks positive, the huge tech selling recently was a sharp reminder that the party may be close to over. The question for long-term investors who want to stay in the market is simple: Where is the value after all of these huge gains over that past eight years? The answer could lie in where the best opportunities for total return are.

We like to remind our readers about the impact total return has on portfolios because it is one of the best ways to help improve the chances for overall investing success. Again, total return is the combined increase in a stock’s value plus dividends. For instance, if you buy a stock at $20 that pays a 3% dividend, and it goes up to $22 in a year, your total return is 13% — 10% for the increase in stock price and 3% for the dividends paid.

We screened our Wall Street research database and found five top stocks that pay at least a 4.9% dividend and could have some outstanding total return potential. All are rated Buy at various firms we cover here at 24/7 Wall St.

AT&T

This company has been hit hard this year and offers investors solid value. 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 14.4 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.

On Tuesday, the company reported first-quarter earnings that met analysts’ expectations, but revenue disappointed. Record-low equipment sales in wireless contributed to a year-over-year drop in revenue.

AT&T investors receive a 5.03% dividend. Merrill Lynch remains positive with a price objective of $46, and the Wall Street consensus target price is $41.77. The shares closed Friday at $38.96.

Kohl’s

This top retailer has traded sideways for months but has posted decent 2017 sales. Kohl’s Corp. (NYSE: KSS) operates department stores in the United States that offer private label, exclusive and national brand apparel, footwear, accessories, beauty and home products to children, men and women customers. The company also sells its products online at Kohls.com and through mobile devices.

While retail chains have suffered from internet pressure, Kohl’s has held its own as consumers see the company as a solid discount retailer. Merrill Lynch said this in a recent report:

Corporate Initiatives: new brands, convert loyalty members to credit cardholders, personalization, win market share from store closures. View on store closures is to keep the majority of its fleet open to defend market share/maintain relevance to the customer. Recent launch of Under Armour has exceeded expectations so far.

Shareholders receive a 5.9% dividend. The Merrill Lynch price target is $45, and the consensus target is $42.57. The shares closed Friday at $37.38.

Occidental Petroleum

This top energy company has one of the highest yielding domestic stocks in the energy sector. Occidental Petroleum Corp. (NYSE: OXY) is an oil-levered multinational organization with principal business segments in oil and gas and in chemicals. The oil and gas segment explores for, develops, produces and markets crude oil and natural gas, primarily in the U.S. Permian Basin, Colombia, Bolivia, Libya, Oman, Qatar and Yemen. The chemicals segment manufactures and markets basic chemicals, vinyls and performance chemicals.

With a rock-solid balance sheet and a commitment to dividend coverage, investors look safe for now. Occidental has paid quarterly cash dividends continuously since 1975, and it has increased its dividend each year since 2002.

The company reported solid earnings and Merrill Lynch said its report:

First quarter for 2017 was solid – but highlighted by management providing a step by step bridge to achieving a $50 break even. Analysis suggests the company’s cash flow approaches $6 billion at $50 oil in 2018; if oil is lower, Permian spending provides flexibility. The company is ‘discounting’ below strip prices, with upside competitive with peers and a large yield that pays investors to wait.

The actual dividend yield is 4.92%. The $80 Merrill Lynch price target compares with the consensus target of $73.48 and the most recent close at $61.83.

Royal Dutch Shell

This company has survived the plunge in oil pricing 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.

Shareholders receive a 5.87% dividend. Merrill Lynch recently raised its price target to $63 from $60, citing a bullish projection for Brent crude at $61 a barrel. The posted consensus price target is $62.81. The shares closed Friday at $54.415.

Seagate Technology

This stock is still down over 40% from the highs posted last year. Seagate Technology PLC (NASDAQ: STX) designs, manufactures and sells electronic data storage products in the Asia-Pacific, the Americas and EMEA (Europe, Middle East and Africa) countries.

The company provides hard disk drives, solid state hybrid drives, solid state drives, PCIe cards and serial advanced technology architecture controllers that are designed for enterprise servers and storage systems in mission critical and nearline applications, as well as for client compute applications comprising desktop and mobile computing.

One of Wall Street’s biggest activist investors, ValueAct Capital, recently became one of Seagate’s largest shareholders with a new 9.5 million share stake. ValueAct established its new position via a secondary block trade, and will gain a seat at board meetings as an observer. ValueAct Capital generally invests in out-of-favor companies and works with them to make changes and boost long-term shareholder value.

Seagate reported revenue that was 3% higher year over year, reversing eight quarters in a row of year-over-year declines. However, it missed the consensus revenue estimate. Its reported adjusted earnings were up 400% year over year and beat the consensus. But the stock was crushed on the report and may be offering an outstanding entry point.

Seagate investors receive a 6.08% dividend. Jefferies has a $50 target price and the consensus target is $46. The stock closed Friday at $42.03.

These five top companies pay huge dividends and offer investors outstanding entry points. One thing to bear in mind is that there is always a possibility they could lower the dividends, which could hit the share price. However, for now the distributions look safe, and in today’s expensive and shaky market, they may be just the ticket for value players looking for total return.