Investors and strategists on Wall Street could see it coming once the market blew up back in February and March. Many companies were forced to eliminate or suspend their dividends as the novel coronavirus swept the country and brought the economy to a standstill. Energy companies, banks, airlines and others that had paid dependable dividends to investors for years had to halt payments to help preserve liquidity, and total return and income investors got hit.
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A massive new report from Jefferies global head of micro-strategy, Desh Peramunetillke, and his team noted that with the world entering another deflationary and low-growth cycle, the hunt for yield is set to revive. In this annual edition of the Jefferies Dividend Playbook, he focused on the changing income landscape amid COVID-19-induced uncertainty and dividend cuts and provided a framework for capturing “rock-solid dividends.”
This was noted in the report:
Investing in high dividend yield stocks has been a rewarding strategy for long-term investors. To capture the full spectrum of income opportunities, we highlight numerous dividend strategies including bond-proxies, growth at a reasonable yield (GARY) and dividend growers. However, with COVID-19 impacting dividend stocks across strategies, we have introduced a new systematic “rock-solid” dividend framework that aims to focus on yield stocks with sustainable dividends. This new strategy has worked across the cycle and has outperformed all dividend strategies over the long term.
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Five top stocks are featured in the USA rock-solid dividend portfolio, and all make sense for total return and income investors looking for dependable dividend payers.
Cisco
This is a mega cap tech leader for more conservative accounts to consider. Cisco Systems Inc. (NASDAQ: CSCO | CSCO Price Prediction) designs, manufactures and sells internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.
It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.
Cisco cybersecurity products give clients the scope, scale and capabilities to keep up with the complexity and volume of threats. Putting security above everything helps corporations innovate while keeping their assets safe.
Shareholders receive a 3.18% dividend. The Jefferies target price for the shares is $49, and the Wall Street consensus target is $48.81. Cisco Systems stock closed Friday’s trading at $45.32 a share.
Eastman Chemical
This stock has rallied smartly off the March lows and is another safe-haven for conservative accounts. Eastman Chemical Co. (NYSE: EMN) engages in the provision of specialty chemicals. It operates through the following segments.
The Additives and Functional Products segment includes chemicals for products in the transportation, consumables, building and construction, animal nutrition, crop protection, energy, personal and home care, and other markets. The Fiber segment offers cellulose acetate tow for use in filtration media, primarily cigarette filters.
The Advanced Materials segment of Eastman Chemical produces and markets its polymers, films and plastics with differentiated performance properties for value-added end uses in transportation, consumables, building and construction, durable goods, and health and wellness markets.
The Chemical Intermediates segment consists of large scale and vertical integration from the cellulose and acetyl, olefins and alkylamines streams to support operating segments with advantaged cost positions.
Investors receive a 3.80% dividend, and Jefferies has a $77 price objective. The posted consensus target price is $72. Eastman Chemical stock was last seen trading at $69.49.
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Honeywell International
This top industrial still could be poised for an incredible 2020 if global growth picks up. Honeywell International Inc. (NYSE: HON) is a New Jersey-based, diversified, global technology and manufacturing company. Its operations are organized under four business groups: Aerospace, Home & Building Technologies, Safety & Productivity Solutions, and Performance Materials & Technologies.
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The company is also a premier supplier of avionics, power and control systems for the aerospace industry. Last year, the analysts attended the company’s Honeywell Building Technologies Investor Showcase at the segment’s Atlanta headquarters, and they noted this in a recent report:
HBT has improved its revenue and margin trajectory following the October 2018 spin-out of its residential business. This is being driven by management & cultural change (four of five segment leaders have been with the company for almost 2 years; President Vimal Kapur is new to HBT, coming from Honeywell’s Process Solutions segment last year). New leaders started reinvigorating products (rising vitality indexes across sub-segments).
Investors receive a 2.48% dividend. The $175 Jefferies price objective compares to the $156.50 consensus figure. Honeywell International stock ended last week at $145.37.
Medtronic
This medical technology giant is a solid pick for investors looking for a safer position in the health care sector. Medtronic PLC (NYSE: MDT) develops, manufactures, distributes and sells device-based medical therapies to hospitals, physicians, clinicians and patients worldwide. It operates in four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group and Diabetes Group.
The company announced last week that Blackstone’s life sciences division will invest $337 million into the research and development of its diabetes device technologies. Under the terms of the agreement, Medtronic will receive funding for four diabetes programs over the next several years. Medtronic’s engineering, clinical and regulatory teams will conduct the development work for the programs.
Blackstone’s investment is sought to pull forward specific programs for its diabetes pump and continuous glucose monitoring pipeline devices that aim to address unmet patient needs. If the programs are successful, Medtronic will pay royalties that are expected to be in the low- to mid-single-digit range as a percentage of sales.
Medtronic stockholders receive a 2.47% dividend. The Jefferies price target is $120. The consensus target is $110.17, and shares closed at $93.91 on Friday.
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Procter & Gamble
The company offers a very dependable dividend, which was raised to $0.79 from $0.75 this spring. Procter & Gamble Co. (NYSE: PG) is one of the world’s largest consumer products companies, and it operates in five segments: Beauty, Grooming, Health Care, Fabric & Home Care, and Baby & Family Care. Its many brands include Pampers, Tide, Bounty, Charmin, Gillette, Oral B, Crest, Olay, Pantene, Head & Shoulders, Ariel, Gain, Always, Tampax, Downy and Dawn. Some of these are among the most valuable brands in the world.
The company sells its products through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores, high-frequency stores and pharmacies. The company has been very innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends.
The dividend increase translates to a 2.66% yield for shareholders. Jefferies has set a $128 price objective. The consensus target price is $129.43, and Procter & Gamble stock closed most recently at $118.92 per share.
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These five rock-solid dividend picks from the Jefferies analysts are outstanding total return plays. They have solid appreciation potential, and it is a very good bet the dividends stay intact and continue to be raised, often annually.
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