Investing

The Fed May Have to Lower Rates Soon: Buy These Safe Dividend Stocks Now

Lee Jackson

Published: February 28, 2020 7:15 am

Last Updated: February 28, 2020 7:17 am

The Dow Jones industrial average is down a stunning 3,200 points this week, and we have given back almost five months worth of gains in six trading sessions. The adage of “the market goes up like an escalator, but down like an elevator” has never been more spot on. Given the drastic drop and increased volatility, in addition to the coronavirus concerns that could put a serious crimp in growth, it is very possible that the Federal Reserve lowers interest rates when it next meets on March 17 and 18.

With the potential for rates to come down, we decided to screen the Merrill Lynch research universe looking for safe companies that pay dividends, have shares that are rated Buy, and tend to do well when the federal funds rate is cut and goes lower. These five make good sense for worried investors now.

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Agnico Eagle Mines

This is one of Wall Street’s most preferred North American gold producers. Agnico Eagle Mines Ltd. (NYSE: AEM) is a senior Canadian gold mining company that has produced precious metals since 1957. Its eight mines are located in Canada, Finland and Mexico, with exploration and development activities in each of these regions, as well as in the United States and Sweden.

The company and its shareholders have full exposure to gold prices due to its long-standing policy of no forward gold sales. Agnico Eagle has declared a cash dividend every year since 1983. With gold pushing toward highs not seen in years, the company could be poised for big-time earnings this year.

In addition, the company’s Meadowbank complex in Nunavutis is expected to achieve commercial production very soon, and the Amaruq project was expected to ramp up to full production by late last year. Amaruq’s gold output is forecast to rise from 130,000 ounces in 2019 to 351,000 ounces in 2021, and it could account for 17% of Agnico Eagle’s total output.

Shareholders receive just a 0.86% dividend. The Merrill Lynch price target for the shares is $74, and the Wall Street consensus target is $70.39. Agnico Eagle Mines stock closed Thursday’s trading at $49.40 a share, down just over 3% on the day.

American Electric Power

This is one of the largest public utilities in the United States and is on the Merrill Lynch US 1 list of top stock picks. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.4 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.

Wall Street analysts have been raising their AEP price targets recently, and the stock was considered a good one for retiring baby boomers.

The utility pays shareholders a solid 2.80% dividend. The analysts at Merrill Lynch have set a $110 price target, while the posted consensus price target was last seen at $105. American Electric Power stock closed at $91.86 per share, down almost 6% on Thursday.

This one always remains a solid pharmaceutical stock to own. Bristol-Myers Squibb Co. (NYSE: BMY) is a global pharmaceutical company focused on discovering, developing, licensing and marketing chemically synthesized drugs or small molecules and biologics in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV), oncology, neuroscience, immunoscience and cardiovascular.

The company reported solid fourth-quarter results, and the Merrill Lynch team noted this:

Bristol reported strong fourth quarter results (though largely ahead of Street given the recognition of Celgene revenue). We highlight the 2020 / 2021 provided guidance as the key focus for investors, as well as +$5 billion increase in share repurchase. While guidance comes in light, we expect the results to be viewed favorably by the Street and look for share strength.

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Holders of Bristol-Myers Squibb stock receive a 3.02% dividend. The $75 Merrill Lynch price target compares with the $72.30 consensus target, as well as the $59.58 closing price after almost a 4% retreat on Thursday.

Target

This remains a solid and safe retail total return play, and it is another member of the Merrill Lynch US 1 stock list. Target Corp. (NYSE: TGT) is one of the largest discount retailers in the United States, operating roughly 1,800 Target stores across the country. The company sells merchandise in its Signature Categories Style, Baby, Kids and Wellness, as well as other products in both physical Target stores and online at Target.com.

The stock was hit last month after the company said sales of toys, electronics and home furnishings over the critical holiday shopping season weren’t as strong as expected, and it warned that overall growth for its fiscal fourth quarter likely will be lower than predicted.

Since 2017, Target has poured tons of money into its e-commerce offerings, overhauling its stores and refreshing its inventory to compete better against Amazon. The recent pullback offers investors a solid entry point after the stock had run, and consumer staples stocks like Target tend to do well when rates are lowered.

Shareholders receive a 2.5% dividend. The Merrill Lynch price objective is a sizable $150. The much lower consensus target is $135.57, and Target stock closed most recently at $105.62, down 4.5% on the day.

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Verizon

This top telecommunications stock offers tremendous value and growth potential. Verizon Communications Inc. (NYSE: VZ) is one of the largest U.S. telecom companies. It provides wireless and wireline service to retail, enterprise and wholesale customers.

The company’s wireless network serves approximately 120 million mobile connections with 115 million postpaid subscribers. Verizon’s wireline business has undergone a period of secular decline due to wireless substitution and cable competition. Verizon acquired AOL and Yahoo to create the Oath digital content platform.

Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide. Furthermore, Verizon is another of the most valuable brands in the world.

Investors receive an outstanding 4.47% dividend. Merrill Lynch has a $64 price objective. The posted consensus target price is $61.61, and Verizon stock closed Thursday at $55.06, down 3.5% on the day.

The scale of the recent selling is something we haven’t seen since 2008, and it may not be over. However, investors that do have some dry powder can take advantage of lower share prices for these industry leaders, collect dependable dividends and own companies that could respond well to a lower interest rate scenario.