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BofA Securities Makes Big Fall Changes to High Quality & Dividend Yield Portfolio
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With the third quarter of 2020 almost over, many of the top companies we follow on Wall Street are making some changes to the curated lists of stock picks for clients. With the market showing increasing volatility, the CBOE Volatility Index is actually trading higher. yet, much of it looks trade and COVID-19 related. It probably makes sense to examine the lists and make some changes, as the rest of the year could have additional volatility as the political and geopolitical cycle in 2020 could continue to prove to be very explosive components as we move toward election day in November.
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We regularly watch the BofA Securities High Quality & Dividend Yield List of top dividend stock recommendations for changes, and this month the analysts added two top companies, Quest Diagnostics Inc. (NYSE: DGX) and Republic Services Inc. (NYSE: RSG), while removing one, Tyson Foods Inc. (NYSE: TSN).
The list tends to lean toward the more conservative side, and with good reason. Many investors, both large and small, have been selling market strength after one of the most amazing years in stock market history. So it makes sense to look for low volatility and stocks that pay reliable dividends.
The team noted this when discussing the portfolio selection:
The screen seeks to identify high quality stocks with secure and above-market dividend yields that are aligned with our analysts’ fundamental outlook. This month’s screen generated 12 stocks which, we believe, investors who are interested in these themes might consider. Current constituents of the screen offer an average dividend yield of 2.6% versus the S&P 500’s dividend yield of 1.7%.
We highlight the two new additions and three additional stocks that are the highest yielding in the portfolio. While all five are rated Buy at BofA Securities, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Quest Diagnostics
With an aging population, this may be a safer way for investors to play health care. Quest Diagnostics is the largest provider of clinical diagnostic testing and related services in the United States, delivered through a national network of full-service clinical laboratories and over 2,200 patient service centers.
The company announced recently it will acquire its joint venture partners’ interests in Mid America Clinical Laboratories and operate the business by itself. The joint venture was formed about 20 years ago by Quest, Ascension St. Vincent and Community Health Network, and it is now the largest independent clinical laboratory provider in Indiana. Once the all-cash equity transaction closes, Quest will wholly own the company’s laboratory in Indianapolis and approximately 50 patient service centers across Indiana.
As part of the deal, Quest will provide professional hospital lab services under long-term service agreements for about 30 hospital labs owned and operated by Ascension St. Vincent and Community Health Network.
Investors receive a 2.02% dividend. The BofA Securities price target is for the shares a whopping $148. That compares to the Wall Street consensus target of $137.33. Quest Diagnostics stock ended Wednesday at $110.69 a share.
Republic Services
This industry giant is new to the portfolio that Microsoft founder Bill Gates and his investment company Cascade have a giant position in. Republic Services Inc. (NYSE: RSG) is the second-largest non-hazardous waste operator, servicing commercial, industrial, municipal and residential customers across 41 states and Puerto Rico.
Vertically integrated, it owns 340 collection operations, 198 transfer stations, 189 active solid waste landfills and 60 recycling centers. Republic has significant economies of scale, with 68% of the waste it collects disposed of at its own landfill.
24/7 Wall St.Republic Services recently announced that it closed an offering of $650 million 1.450% senior notes due February 2031. The net proceeds of the offering will be used to finance the call of its 5.250% senior notes due November 2021. The redemption is expected to occur on September 10, 2020. Lowering interest expense is always a positive for shareholders.
Shareholders receive a 1.80% dividend. The BofA Securities price target is $101, while the consensus target was last seen at $98.62. Republic Services stock closed at $94.71 on Wednesday.
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Emerson Electric
This stock has rallied nicely off the lows posted in March but still offers a solid 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 2.83% dividend. The $80 BofA Securities price target compares with the $70.58 consensus figure. Emerson Electric stock was last seen trading at $70.70.
General Dynamics
This company, like other major defense prime contractors, has had a solid year, and the balance of 2020 looks very positive. General Dynamics Corp. (NYSE: GD) is engaged in business aviation, land and expeditionary combat vehicles and systems, armaments, munitions, shipbuilding and marine systems, and information systems and technologies.
Major products include Virginia-class nuclear-powered submarine and Ohio class replacement, Arleigh Burke-class Aegis, Abrams M1A2 tank, Stryker eight-wheeled assault vehicle, medium-caliber munitions and gun systems, tactical and strategic mission systems.
Some Wall Street analysts were disappointed by quarterly results from the company’s information technology segment. Though most don’t view the segment’s struggles as a product of a structurally impaired business, some may begin to question that thesis. However, most continue to see value in the company’s Marine, Aerospace, Mission, and Land businesses and view the overall valuation as depressed.
Investors in General Dynamics stock receive a 2.86% dividend. BofA Securities has set a $175 price target. The consensus estimate is $172.78, and the last trade on Wednesday hit the tape at $153.92.
Public Storage
This giant self-storage leader has always been a go-to REIT stock for income investors. Public Storage Inc. (NYSE: PSA) is a fully integrated, self-administered and self-managed real estate investment trust that primarily acquires, develops, owns and operates self-storage facilities.
As of December 31, 2019, Public Storage had interests in 2,483 self-storage facilities located in 38 states with approximately 169 million net rentable square feet in the United States and 35% equity interest in Shurgard, which owned 234 storage facilities located in seven Western European nations with approximately 13 million net rentable square feet.
Investors receive a 3.74% distribution. The BofA Securities price target is $229. The consensus target is just $199.91, below the $214.16 per share at which Public Storage stock closed on Wednesday.
With outstanding metrics and good dividends, these quality companies make good sense for conservative growth portfolios. With solid total return potential, and seemingly far less potential for volatility, they all are outstanding long-term portfolio additions.
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