Investing

Merrill Lynch Has 4 Buy-Rated Stocks That Yield at Least 9%

Lee Jackson

Published: July 27, 2017 10:05 am

Last Updated: March 13, 2020 5:36 pm

With interest rates edging up, but historically still very low, income investors have been backed into a corner while searching for yield. Treasury bonds and bills certainly are not the answer, especially on the long end, and most corporate debt, including high yield, is trading very expensive. So what are investors looking for higher yield to do, especially if they have a more aggressive risk tolerance?

We screened the Merrill Lynch research database for companies, and in one case an exchange traded fund, that have high yields and a Buy rating from the analysts. To be sure, none of these are really suitable for conservative income accounts, but all could be good additions in reasonable share amounts for investors looking for income.

CenturyLink

This company offers solid value and is expected to continue get a large dose of government money to provide continuing internet service in rural areas. CenturyLink Inc. (NYSE: CTL) is the nation’s third-largest telephone company and the largest rural exchange provider serving residential, business and wholesale customers.

The company offers broadband services, which allow customers to connect to the internet through their existing telephone lines or fiber-optic cables; multi-protocol label switching, a data networking technology to support real-time voice and video; and private line services for the transmission of data between sites. It also provides Ethernet services, including point-to-point and multipoint equipment configurations that facilitate data transmissions across metropolitan areas and wide area networks.

Back in March shareholders of CenturyLink and Level 3 Communications approved their merger by overwhelming majorities. Wall Street loves this deal, and the synergies the two have combined are very strong.

It should be noted that the analysts at Merrill Lynch were also positive on Frontier Communications, a similar communications provider that was forced to cut its dividend and eventually did a reverse split due to the low share price of the company’s stock.

CenturyLink investors receive a gigantic 9.45 % dividend. Merrill Lynch has a staggering $42 price target for the stock, while the Wall Street consensus target is $26.27. Shares traded early Thursday at $23.40.

Energy Transfer Partners

This energy master limited partnership (MLP) merged with Sunoco Logistics Partners last year. Energy Transfer Partners L.P. (NYSE: ETP) engages in the natural gas midstream and intrastate transportation and storage businesses in the United States.

The company’s Intrastate Transportation and Storage segment transports natural gas from various natural gas producing areas, and through ET fuel system and HPL system. It owns and operates 7,500 miles of natural gas transportation pipelines and three natural gas storage facilities in Texas. Its Interstate Transportation and Storage segment provides natural gas transportation and storage services; owns and operates approximately 12,300 miles of interstate natural gas pipeline; and has interests in various natural gas pipelines.

The Midstream segment gathers, compresses, treats, blends, processes and markets natural gas. It owns and operates 35,000 miles of in service natural gas, 31 natural gas processing plants, 21 natural gas treating facilities and four natural gas conditioning facilities.

The unitholders receive a 10.58% distribution. The Merrill Lynch price objective is $26, but the consensus target is $28.64. Shares traded Thursday morning at $20.15.

Golar LNG Partners

This is a liquefied natural gas (LNG) shipping and storage play that holds a big distribution for shareholders and is a top pick across Wall Street. Golar LNG Partners L.P. (NASDAQ: GMLP) owns and operates floating storage regasification units (FSRUs) and LNG carriers under long-term charters in Brazil, the United Arab Emirates, Indonesia and Kuwait. The company also engages in the leasing of its fleets.

The Marshall Islands–based company has a fleet of six FSRUs and five LNG carriers, a combined average remaining useful life of 25 years, and an average remaining charter duration of five-plus years. The company posted solid third-quarter results and was successful in lowering leverage.

Golar LNG Partners has a diverse pipeline that includes Golar’s FLNG projects and, as a result, some Wall Street analysts feel the company has the largest growth potential in its peer group, with potential drop-downs/newbuilding inventories of 16 vessels.

Shareholders receive a 10.41% distribution. The $25 Merrill Lynch price target compares with the consensus target of $23.56. Shares were last seen at $22.20.

AllianzGI Convertible & Income Fund

This closed-end leveraged fund trades on the New York Stock Exchange. AllianzGI Convertible & Income Fund (NYSE: NCV) invests in a diversified portfolio of domestic convertible securities and nonconvertible high-yield bonds rated below investment grade. The managers seek to invest at least 50% of its portfolio in convertibles, but determines its allocation based on changes in equity prices, changes in interest rates and other economic and market factors. For the convertible portion, Allianz Global Investors seeks to capture the upside potential of equities with potentially less volatility than a pure stock investment.

In searching for investment opportunities, the manager looks for issuers that will successfully adapt to change, exceed minimum credit statistics and exhibit the most promising operating performance potential. It is important to note that the managers only invest in companies with these three traits:

1. Positive change: New products or pricing, increased financing, regulatory approvals or more street research
2. Sustainability: Strong financials, competitive product lines and pricing and high barriers to entry
3. Timeliness: Strong trading, recent litigation, product launches, company announcements or government oversight, which have a favorable impact on the company

Investors receive a 10.85% dividend on a monthly basis. While Merrill Lynch has a Buy rating on the shares, it has no price target. Shares traded early Thursday at $7.20.

These are four top income ideas for those looking for yields that are way above average. It’s important to note that all these stocks and funds are only suitable for extremely aggressive accounts, and there is always potential for dividends and distributions to be lowered.