Investing

4 Dividend Stocks That Are Still Better Buys Than Bonds

Lee Jackson

Published: May 30, 2018 8:10 am

Last Updated: January 11, 2020 11:01 pm

Even though the yield on the 10-year Treasury has jumped over the psychological 3% level, and has again eclipsed the yield on the S&P 500, there is still a large basket of stocks that offer yields better than buying a bond that has a 10-year commitment.

While the Treasury debt is super-safe, as it is backed by the full faith and credit of the United States, investors better be prepared to hold as interest rates are going higher. That is where some top dividend-yielding stocks still make great sense for investors looking for total return.

We screened the Merrill Lynch research database, looking for stocks rated Buy that have a yield that is greater than the 10-year Treasury and have that firm’s best rating for volatility risk. We found four that look like top picks for investors now.

American Electric Power

This industry leader is a solid dividend-paying company and is on the Merrill Lynch US 1 list of high-conviction stocks. 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 receive 3.67% dividend. The Merrill Lynch price objective on the shares is $76, and the Wall Street consensus target price is $73.41. Shares closed on Tuesday at $67.62.

Coca-Cola

This top Warren Buffet holding not only offers safety but an incredibly strong worldwide brand with 40% overseas sales. 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, one of the world’s most valuable and recognizable brands, the company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one 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 Coca-Cola beverages at a rate of more than 1.9 billion servings a day. With coolers getting packed for picnics, parades and vacations you can bet that they will be stuffed with products from this iconic American company. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.

Investors receive a 3.66% dividend. Merrill Lynch has a $52 price target, while the consensus target is $49.75. The stock closed Tuesday at $42.68.

Exxon

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.

Exxon posted first-quarter 2018 earnings of $4.7 billion, or $1.09 per share assuming dilution, compared with $4 billion a year earlier. Cash flow from operations and asset sales was $10 billion, including proceeds associated with asset sales of $1.4 billion. During the quarter, the corporation distributed $3.3 billion in dividends to shareholders. Capital and exploration expenditures were $4.9 billion, up 17% from the prior year.

In addition, the company recently raised its dividend by a nickel to $0.82 per share, which now translates to a nifty 4.2% dividend.

The $110 Merrill Lynch price objective is higher than the consensus estimate of $87.26. The stock closed Tuesday at $78.42.

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Pfizer

This top global biopharmaceutical company made a gigantic splash with its $5.5 billion purchase of Anacor Pharmaceuticals. Pfizer Inc. (NYSE: PFE) has a diversified portfolio of products and pipeline candidates and is one of the largest pharmaceutical companies in the world as measured by market capitalization and revenue. It also is a component of the Dow Jones Industrial Average.

The company’s commercial operations are bifurcated into two business segments: Innovative Health, which focuses on the development and commercialization of medicines and vaccines, as well as consumer health care products, in various therapeutic areas, and Essential Health, which offers branded generic products, biosimilars, anti-infectives and other products without marketing patent protection.

Investors receive a 3.81% dividend. Merrill Lynch has set its price objective at $42. The consensus price target is $39.60, and shares closed Tuesday at $35.28.

Needless to say, these stocks are not a safe as U.S. Treasury debt, but with yields higher than the 10-year bond, a very safe volatility profile and the ability to trade in and out with ease as they are all incredibly liquid, they make great additions to more conservative growth and income portfolios now.