Investing

5 Dividend Blue Chips to Buy for Safety During the Summer

Lee Jackson

Published: May 4, 2018 8:20 am

Last Updated: January 12, 2020 12:04 am

It has happened consistently since the big sell-off in early February. The days of investors buying every dip appears to be over, and in fact, it now seems that every rally is met by a large horde of sellers. While this might be perplexing to investors who have seen incredible first-quarter earnings and an economy that seems much stronger, the reality is we are in the back end of a long market rally.

Given what appears to be a new normal, we decided to screen the Merrill Lynch research database for large, liquid blue chips that are rated Buy and offer a degree of safety as we get close to the slower summer trading months. We found five companies paying dividends much higher than the current Treasury yields, and their shares look like great additions to long-term growth portfolios.

Altria

This maker of tobacco products and wine has been hit hard and offers value investors a great entry point. Altria Group Inc. (NYSE: MO) is a top mega-cap consumer discretionary stock to buy on Wall Street, and the company’s Marlboro brand remains one of the most recognizable in the world. Many Wall Street analysts concede that the stock has solid downside support owing to the generous dividend yield, which remains at a huge premium in relation to the 10-year Treasury rate.

Cash flow generation and the return of cash to Altria shareholders remain key facets of the company’s total shareholder return, and the analysts expect support of the strong dividend, which they believe will continue to climb along with strong share repurchase activity.  The board also raised the dividend by 8.2% in 2017.

To diversify away from cigarettes and cigars, Altria has expanded its portfolio into new categories like wine, e-cigarettes and a 27% stake in brewer SABMiller.

The company said its earnings for the first quarter rose from the same period of last year. Despite the strong report, the stock was hit hard and traded near a 52-week low.

Altria investors are paid a hefty 4.97% dividend. The Merrill Lynch price target for the shares is $70, and the Wall Street consensus estimate is $70.38. The stock closed Thursday at $56.36 a share.

American Electric Power

This industry leader is a solid dividend payer. 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.

The company 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.

American Electric Power shareholders are paid a solid 3.61% dividend. Merrill Lynch has a $78 price objective, and the consensus target price was last seen at $72.75. Shares closed on most recently at $69.24 apiece.

Exxon Mobil

This remains a top Wall Street energy pick and is on the US 1 list at Merrill Lynch. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

Recently, Exxon announced estimated first-quarter 2018 earnings of $4.7 billion, or $1.09 per share assuming dilution, compared with $4.0 billion a year earlier. Cash flow from operations and asset sales was $10 billion, including proceeds associated with asset sales of $1.4 billion.

In addition, Exxon has raised the dividend by $0.05 per share to $0.82. That now translates to a nifty 4.3% dividend. During the quarter, the corporation distributed $3.3 billion in dividends to shareholders. Capital and exploration expenditures were $4.9 billion, up 17 percent from the prior year.

The $100 Merrill Lynch price objective is well above the $85.98 consensus target price. The stock closed trading at $76.54 on Thursday.

Kraft Heinz

Kraft Heinz Co. (NYSE: KHC) was formed in July of 2015 via the merger of H.J. Heinz and Kraft Foods. The company is the leading global food company, with $29 billion of annual revenues generated by well-known brands such as Kraft, Heinz, Oscar Meyer and Maxwell House.

The company is the third largest food and beverage manufacturer in North America, and it derives 76% of revenues from that market and 24% from International. The company’s many brands also include ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon, Quero, Weight Watchers Smart Ones and Velveeta.

Shareholders of Kraft Heinz are paid a 4.55% dividend. Merrill Lynch has set its price target at $85. The posted consensus target is $73.82. and the shares were last seen trading at $54.95.

Simon Property

Simon Property Group Inc. (NYSE: SPG) invests in the real estate markets across the globe. It engages in investment, ownership, management and development of properties. It primarily invests in regional malls, premium outlets and community/lifestyle centers to create its portfolio.

Through its subsidiary partnership, it owns or has an interest in about 230 properties in the United States and Asia. The company also has a 28.9% interest in Klepierre, a European REIT with over 260 shopping centers in 13 countries.

Despite the increasingly difficult retail environment, analysts remain positive on this REIT giant, believing that the solid competitive position of Simon Property should still lead to about 4.5% to 5.0% funds from operations per share annual growth over the next three years.

One key driver of growth will include the more than $1.0 billion in development/redevelopment planned over the next few years. Merrill Lynch also feels that the company’s high-quality portfolio is weathering the retail storm better than most.

Shareholders are paid a 4.75% distribution. The Merrill Lynch price target is $190. The consensus price target is $184.86, and the shares ended trading on Thursday at $159.04.

These five top companies are liquid, pay big dividends and look like safe havens as the market volatility continues to churn. Needless to say, a massive market sell-off will take everybody down, but these five probably will weather the storm better than tech momentum darlings.