Every single day they seem to go lower, and with a large amount of foreign sovereign debt trading at negative interest rates, you can bet U.S. Treasury rates will keep heading south as buyers continue to show up. For people looking to buy a house, a car or any large durable goods item, lower rates are awesome. However, for those who need streams of dependable income, they are somewhat unwelcome.
The 2019 S&P 500 Dividend Aristocrats list is 57 companies that have increased dividends for 25 years straight. Keep in mind that just because they are on this list now doesn’t mean in the future they won’t be forced to reduce their dividends. With that noted, we screened the list for stocks rated Buy in the Merrill Lynch research universe and found five that looked solid and safe values for nervous investors.
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AT&T
This is the telecom component on the Merrill Lynch US 1 list. AT&T Inc. (NYSE: T | T Price Prediction) is the world’s largest provider of pay TV. The company has 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.
The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions. With shares 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.
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AT&T reported solid operating results in the second quarter, including consolidated revenue growth, expanding operating income margin and record operating and free cash flow. AT&T’s consolidated revenues for the second quarter totaled $45.0 billion, up 15.3% from a year ago, primarily due to the Time Warner acquisition.
Declines in revenues from legacy wireline services, Vrio, domestic video and wireless equipment were more than offset by the addition of WarnerMedia and growth in domestic wireless services, strategic and managed business services, IP broadband and Xandr.
AT&T shareholders receive a rich 5.84% dividend. Merrill Lynch has a $37 price target on the shares, and the Wall Street consensus target is $34.42. The shares closed trading on Wednesday at $34.96.
Caterpillar
This large-cap leader has been hit by trade worries and is offering a very solid entry point. Caterpillar Inc. (NYSE: CAT) is the largest manufacturer and marketer of construction equipment worldwide, and it is also a leading manufacturer of diesel engines and turbines for transport and industrial applications.
The company posted poor second-quarter results, but the long-term story is intact and the Merrill Lynch analysts said this:
Bull/bear debate likely rages on as 2019 outlook hinges on an improvement in fourth quarter, and working down dealer inventories. At the end of the day, consensus likely moves to bottom end of the range and we see levers to drive EPS growth through 2020 and 2021 estimated numbers. The company’s commitment to dividend growth provides investors a yield while central banks ease and recession risks fade over time.
This is one of the companies with the most corporate debt.
Shareholders receive a respectable 3.60% dividend. Merrill Lynch has a $150 price target, and the consensus target is $116.26. The shares closed at $114.86 on Wednesday.
Consolidated Edison
This old-school stock offers investors the stability and track record many seek now. Consolidated Edison Inc. (NYSE: ED) offers electric services to approximately 3.5 million customers in New York City and Westchester County; gas to around 1.1 million customers in Manhattan, the Bronx and parts of Queens and Westchester County; and steam to about 1,700 customers in parts of Manhattan.
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The company owns 62 area distribution substations and various distribution facilities; 39 transmission substations and 62 area stations; electric generation facilities with an aggregate capacity of 724 megawatts that run on gas and fuel oil; 4,348 miles of mains and 369,791 service lines for natural gas distribution; and one steam-electric generating station and five steam-only generating stations.
The company operates 572 circuit miles of transmission lines; 14 transmission substations; 86,794 in-service line transformers; 3,994 pole miles of overhead distribution lines; and 1,889 miles of underground distribution lines, as well as 1,867 miles of mains and 105,482 service lines for natural gas distribution. In addition, it is involved in the sale and related hedging of electricity to retail customers, and the provision of energy-related products and services to wholesale and retail customers.
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Consolidated Edison shareholders receive a 3.37% dividend. The $97 Merrill Lynch price target is well above the $80.65 consensus target. The shares closed most recently at $87.77.
Emerson Electric
This is another stock that has been hit hard and offers a tremendous entry point for investors. Emerson Electric Co. (NYSE: EMR) is a global technology and engineering company providing innovative solutions for customers in industrial, commercial and residential markets.
The company’s Automation Solutions business helps process, hybrid and discrete manufacturers maximize production, protect personnel and the environment while optimizing their energy and operating costs. The Commercial & Residential Solutions business helps ensure human comfort and health, protect food quality and safety, advance energy efficiency and create a sustainable infrastructure.
Shareholders receive a 3.40% dividend. Merrill Lynch has set a $76 price target. The consensus figure is $72, and the stock was last seen trading at $57.83.
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Exxon Mobil
This remains a top Wall Street energy pick and is another safer long-term play for conservative investors. 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.
Exxon 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. Note that Exxon has one of the highest paid American CEOs.
The company reported mixed second-quarter results that did have positive trends, and Merrill Lynch noted this:
Another quarter of heavy maintenance masks an emerging inflection in liquids growth, and expanding upstream cash margins. Cash flow continues to lag capital expenditures and dividends; we see no issue as spending to double cash flow does not match the timing of asset sales. Maintenance is transitory; the company is clear about preparedness to lean on the balance sheet until cash flow catches up.
The company raised the dividend earlier this year a nickel to $0.87 per share. That now translates to a solid 5.14% dividend. The Merrill Lynch price objective is $100. The consensus target is much lower at $83.92. The stock closed at $67.68.
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Five Dividend Aristocrat members that are all rated Buy at Merrill Lynch. These are great stocks for long-term buy-and-hold accounts looking to add safety and dependable income. While not the most exciting companies in the world, they will certainly hold up much better than some should the market take a deep dive.
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