With volatility returning to the market, and investors absolutely crushing momentum stocks that disappoint, it appears that we have reached a crossroad in the long-running bull market. The days of the FANG stocks all going up every year and taking the market along for the ride may be over.
What may be the best course of action is to find growth stocks that pay solid dividends, and keep increasing those dividends.
The Merrill Lynch Equity Income portfolio is designed for investors who are looking to stay in the market but would like to avoid momentum stock volatility. Here’s how the firm describes the portfolio.
The Research Income Portfolio is designed for moderate investors who want to obtain an ongoing secure income stream from what we view as dependable sources, with some emphasis on protection of principal. The Income portfolio is unique in its 3.52% dividend yield with diversified holdings across all Global Industry Classification Standard or GICS sectors and an estimated 8.5% in dividend growth.
We picked out the five top holdings in the portfolio. Of course, all are rated Buy at Merrill Lynch.
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Royal Dutch Shell
This company has survived the seesaw in oil pricing as good as or better than any other major integrated. 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.
In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.
The company just announced the start of a $25 billion stock buyback program, and while second-quarter earnings were somewhat weak, free cash flow at the integrated giant remains strong.
Royal Dutch Shell investors are paid a huge 4.67% dividend. The Merrill Lynch price objective for the stock is $78, and that compares with the Wall Street consensus figure of $78.51. The shares ended Tuesday’s trading at $68.37.
Lockheed Martin
This is a top aerospace and defense stock to buy, and many on Wall Street are expecting a very solid continuation of U.S. and foreign defense spending. Lockheed Martin Corp. (NYSE: LMT) researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems, products and services. It also provides a wide range of defense electronics products and IT services.
Being the Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady inflow of follow-on orders, not only from the U.S. government but also from many foreign allies of the nation.
The company reported strong second-quarter earnings, with revenues up almost 7% year over year.
Investors in Lockheed Martin are paid a 2.45% dividend. Merrill Lynch has a $412 price objective for the shares, and the posted consensus target price is $375.76. The stock closed Tuesday at $326.10 a share.
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Toronto-Dominion Bank
This is a top yielding financial stock to add to portfolios. Toronto-Dominion Bank (NYSE: TD) is the largest Canadian bank and has over 1,100 branches across the country, with an above-average concentration in Ontario.
The bank’s domestic retail banking operations are the crown jewel and underpin its solid retail franchise, and the bank has below-average exposure to capital markets businesses. TD has been active on the acquisition front in recent years, and it operates through its TD Commerce Bank and TD Ameritrade in the United States.
TD Ameritrade business an incredibly fast-growing business that consistently challenges for online supremacy among the top Wall Street investment banks.
Investors are paid a very solid 3.53% dividend. The $67 Merrill Lynch price target compares with the consensus price objective last seen at $64.12. The stock ended trading most recently at $59.18 a share.
CME
This company had a record 2017, and 2018 looks very promising as well. CME Group Inc. (NASDAQ: CME) exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options. CME brings buyers and sellers together through its Globex electronic trading platform and its trading facilities in New York and Chicago.
The company also operates CME clearing, one of the world’s leading central counterparty clearing providers, which offers clearing and settlement services across asset classes for exchange traded contracts and over-the-counter derivatives transactions.
The company’s non-U.S. business is growing, and with West Texas Intermediate crude increasing relevance as a global benchmark, it is another positive for the trading giant.
CME investors are paid a 1.76% dividend. The Merrill Lynch price target was not available, but the consensus target is $181.80. Shares closed on at $159.12 on Tuesday.
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Crown Castle International
This top tower stock offers incredible growth and income possibilities. Crown Castle International Corp. (NYSE: CCI) is one of the largest U.S. wireless tower companies, with over 40,000 towers across the country. Its core business is leasing space on its wireless towers primarily to wireless carriers, government agencies and broadband data providers.
The analysts continue to see momentum building through the year and expect the second half of 2018 will be stronger than the first half, with growing backlogs across towers, fiber and small cells. They also believe near-term upside to estimates remain and, in the early innings of 5G network upgrade cycles with leading tower and fiber/small cell portfolios, find the company well positioned.
Crown Castle investors are paid a very solid 3.79% distribution. Merrill Lynch has set its price objective at $119. The consensus target price is $116.17, and the stock closed on Tuesday at $110.83 a share.
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These five top growth companies, all rated Buy at Merrill Lynch, pay outstanding dividends and have good growth prospects. With the market very pricey, they make sense for investors looking to shift to lower beta profile stocks
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