Investing
As Yields Plunge to Lows, 4 Blue Chips Sport Incredible 6% Dividends
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For the first time in a very long time, the federal funds rate of 2.5% is higher than the yield on the 10-year Treasury, which is at a 20-month low of 2.25%. 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. There is a significant risk tolerance between the two, but the reality is that overall yields in the United States are expected to remain lower than normal for years.
For those looking for yield and total return, we here at 24/7 Wall St. decided to screen the Merrill Lynch research database looking for stocks that were rated Buy and came with a dividend yield of 6% or higher. The following four, despite having higher yields than almost all top stocks, are not outrageously risky by any means.
AT&T
This is the telecom component on the prestigious 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 telecom giant missed Wall Street estimates for quarterly revenue in April due to lower-than-expected sales in its Warner Media unit and a shortfall in income from a wireless business, where it has cut prices to draw in customers.
AT&T shareholders are paid a rich 6.39% dividend. Merrill Lynch has a $37 price target on the shares, while the Wall Street consensus target was last seen at $33.81. The stock closed trading on Wednesday at $31.91 a share.
Altria
This maker of tobacco products offers value investors a great entry point now, and it took a hit recently as cigarette sales have slowed. 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, one of the most valuable brands in the world.
Altria owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In addition, to help lagging cigarette demand, in December 2018 it acquired 35% of JUUL Labs. Altria also came in with a mixed bag of first-quarter results, and the stock has been weak recently, thus that great entry point. The Merrill Lynch analysts this about the results:
Net sales for the quarter totaled $3.9 billion, -$237 million versus our forecast and led by weaker than anticipated cigarette volumes. Altria management reaffirmed its guidance for 2019 EPS to be in a range of $4.15 to $4.27 (unchanged) despite higher fuel prices.
Altria pays its shareholders a significant 6.38% dividend. Merrill Lynch has set a $66 price target on the stock, which compares to the lower consensus estimate across Wall Street of $58.73. The shares traded most recently at $50.19 apiece.
24/7 Wall St.Ford
This venerable automotive giant remains a solid value play now, and demand could jump with a trade deal with China paving the way. Ford Motor Co. (NYSE: F) is one of the world’s largest vehicle producers, with over 6 million units manufactured and sold globally. The company has made significant progress executing on its One Ford plan and delivering best-in-class vehicles.
The company also remains committed to positioning itself well within the evolving auto industry through balanced investments across electrification, autonomy and mobility services.
Ford reported solid first-quarter results with a large earnings beat, and the updated guidance should finally drive some earnings upgrades. Credit risk stabilized, and the dividend was confirmed. The Merrill Lynch team continues to see Ford as one of the most promising restructuring investment cases in its sector.
Investors in Ford are paid an outstanding 6.18% dividend. The sizable $14 Merrill Lynch price target compares with the $10.36 posted consensus target price. The stock ended trading at $9.71 per share on Wednesday.
Occidental Petroleum
This energy company made huge news recently with a Warren Buffett backed purchase of Anadarko Petroleum. Occidental Petroleum Corp. (NYSE: OXY) is an oil-levered multinational organization with principal business segments in oil and gas and in chemicals.
The oil and gas segment explores for, develops, produces and markets crude oil and natural gas, primarily in the U.S. Permian Basin, Colombia, Bolivia, Libya, Oman, Qatar and Yemen. Meanwhile, the chemicals segment manufactures and markets basic chemicals, vinyls and performance chemicals.
With the company’s rock solid balance sheet and a commitment to dividend coverage, investors look safe for now. Occidental has paid quarterly cash dividends continuously since 1975, and it has increased its dividend each year since 2002.
The Merrill Lynch analysts remain very positive and noted this recently when discussing the Anadarko deal:
We are resuming our coverage of Occidental following a period of restriction with a Buy Rating. The shares have underperformed on the Anadarko acquisition, but the investment case anchored by yield has not changed. Further the company’s bid, while higher than Chevrons, stands to release substantially more value via asset sales and synergies.
Occidental Petroleum pays shareholders a sizable 6% dividend. Merrill Lynch has reinstated its $85 price target on the shares. That is well above the consensus target of $73.50, as well as the most recent close at $52 a share.
These four blue-chip leaders have been battered for a variety of reasons. While they could always go lower, the dependable dividends can at least help to mitigate huge drops in the stock prices. In the meantime, shareholders will be paid handsomely to sit and wait for the shares to turn higher.
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