Investing

Merrill Lynch Has Buy Ratings on 4 Quality Stocks That Yield 6% or More

Lee Jackson

Published: March 7, 2019 7:50 am

Last Updated: January 30, 2020 11:49 pm

For the first time in a very long time, the cash yield is higher than the yield on the S&P 500. While that is great news for savers, who have been hammered with low CD and money market rates, it doesn’t do much for growth and income investors. While there is a significant risk tolerance between the two, the reality is that it definitely appears overall yields in the United States are expected to remain lower than normal for years.

For those looking for total return, we decided here at 24/7 Wall St. to screen the Merrill Lynch research database looking for companies that were rated Buy and had a dividend yield of 6% or higher. We found four that, despite having higher yields than almost all top stocks, were not outrageously risky by any means.

AT&T

This stock has been absolutely hammered and is back on the Merrill Lynch US 1 list. 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.

This telecom giant also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions. Trading at a very cheap 9.4 times estimated 2019 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.

The company’s fourth-quarter revenue of $47.99 billion fell short of analyst estimates. AT&T also reported net additions of 134,000 phone subscribers, well below analyst estimates of 308,000. The company also lost 403,000 satellite TV subscribers and 14% of its DirecTV Now streaming subscribers in the quarter.

AT&T shareholders are paid rich 6.81% dividend. Merrill Lynch has a $37 price target for the shares, and the Wall Street consensus target was last seen at $33.84. The stock closed trading on Wednesday at $29.81 per share.

Altria

This maker of tobacco products offers value investors a great entry point now. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.

Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008 it spun off its international cigarette business to shareholders. In December 2018, it acquired 35% of JUUL Labs. Fourth-quarter numbers were solid, and the Merrill Lynch analysts said this:

Altria reported fourth quarter 2018 earnings per share of $0.95, in line versus Merrill Lynch consensus estimates. Smoke-able net sales beat our forecast by $9 million due to stronger price/mix. Altria’s smoke-able shipments were in line. Management provided color on US industry trends, a mid-term category outlook, and insights on its recent investments. We believe that management has made proactive steps to secure long term growth with its evolving platform.

Investors in Altria are paid a huge 6.10% dividend. Merrill Lynch has a price target of $56, and the posted consensus estimate is $56.80 The stock closed Wednesday’s trading at $54.67, up almost 3.5% on the day.

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Blackstone

This is a top money management company and its shares make sense for more aggressive growth and income investors. Blackstone Group L.P. (NYSE: BX) is one of the largest global alternative asset managers. Blackstone manages investments and provides services across four operating segments: Private Equity, Real Estate, Credit and Hedge Fund Solutions.

Blackstone also launches and manages private equity funds, real estate funds, funds of hedge funds and credit-focused funds for its clients. It invests in private equity, public equity, fixed income, and alternative investment markets.

Blackstone investors receive an outstanding 6.88% distribution. Note that the $36 Merrill Lynch price target is less than the $39.95 consensus figure. Shares closed most recently at $33.72 apiece.

Enterprise Products Partners

This is one of most conservative energy partnerships and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) is the largest publicly traded master limited partnership providing a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, natural gas liquids fractionation, import and export terminaling, and offshore production platform services.

One reason why many analysts may have a liking for the stock might be its distribution coverage ratio. The company’s distribution coverage ratio is well above one times, making it relatively less risky among the MLPs. The company’s distributions have grown consistently over the years, and earlier this year, Enterprise Products Partners announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.435 per common unit, or $1.74 per unit on an annualized basis.

In this case, investors are paid a very solid 6.23% distribution. Merrill Lynch has set its price target for the stock at $32. The posted consensus price target was last seen at $33.41, and the shares closed most recently at $27.86.

These four stocks could be great total return stories that also offer investors a degree of safety in what has become a very expensive stock market. They all make sense for growth and income accounts, and the stocks all are still well down from 52-week highs, which makes them solid buys now.