With the stock market seemingly ripping higher every day, many investors are wondering what to do now. Sell? Throw more money at an already overbought and expensive market? Yields have plunged again, with the 30-year Treasury bond back below 2% and the 10-year below 1.5%. So corporate bonds are out of the question, and high yield probably isn’t worth the risk at this point. One solid idea is big dividend stocks that are still trading at reasonable levels.
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While this year has been incredible for investors, with all of the major indexes up by double-digit percentages, next year may not be quite so rosy. Inflation is rampant, despite the denial from many in Washington, and given the solid gains in the October nonfarm payrolls, and hope for continued gains, interest rate increases may be coming sooner than later.
The best strategy for 2022 may very well be for investors to be positioned for total return, which, as we like to remind our readers, is one of the best ways to help improve the chances for overall investing success. Again, total return is the combined increase in a stock’s value plus dividends. For instance, if you buy a stock at $20 that pays a 3% dividend and it goes up to $22 in a year, your total return is 13%. That is, 10% for the increase in stock price and 3% for the dividends paid.
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We screened our 24/7 Wall St. equity universe looking for stocks that pay big and dependable dividends and that are Buy rated. We found four that fit the bill perfectly. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Altria
This maker of tobacco products offers value investors a great entry point now and was hit recently as cigarette sales have slowed. Altria Group Inc. (NYSE: MO | MO Price Prediction) 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.
Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008, it spun off its international cigarette business to shareholders. In December 2018, the company acquired 35% of Juul Labs, and it has purchased a 45% stake in cannabis company Cronus for $1.8 billion.
Tobacco stocks usually don’t reflect the current idea of growth, but Altria is a long-term hold stock that has proven to be a well-run and solid operation over the years. Its $3.60 annual dividend remains comfortably safe under its projected $4.85 in earnings per share next fiscal year, meaning the income potential of this stock is still a solid bet.
Shareholders receive a 7.96% dividend. BofA Securities has a $53 target price on Altria stock, which is higher than the $48.33 consensus target. Shares ended Friday trading at $45.20 apiece.
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IBM
This blue chip giant still offers investors an incredibly solid entry point. International Business Machines Corp. (NYSE: IBM) is a leading provider of enterprise solutions, offering a broad portfolio of information technology (IT) hardware, business and IT services, and a full suite of software solutions. The company integrates its hardware products with its software and services offerings in order to provide high-value solutions.
Analysts have cited the company’s potential in the public cloud as a reason for their positive outlook going forward, and the cloud has proved to be big in recent earnings reports.
BofA Securities is positive on the future for the venerable tech giant and noted this last month:
IBM presented the company’s roadmap post the Kyndryl spinoff. Mid single digit revenue growth and high single cash flow growth. The company expects to generate $35 billion in free-cash-flow over the next three years and along with debt have access to $40 billion of liquidity. We expect the valuation multiple to rerate higher post spin with increased growth, recurring revenues and better margins.
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IBM stock investors receive a 5.31% dividend. The BofA Securities price target is $172, and the consensus target is just $149.45. Friday’s closing price was $123.61 per share.
MPLX
This is the top holding for the Alerian MLP energy exchange-traded fund. MPLX L.P. (NYSE: MPLX) is primarily engaged in crude oil and refined products transportation and terminaling in the U.S. Midwest and Gulf Coast regions, as well as natural gas gathering and processing in the northeast from its prior acquisition of MarkWest Energy in 2015. MPLX was formed by independent U.S. refiner Marathon Petroleum.
MPLX is one of the bigger pipeline entities, with a market capitalization of nearly $30 billion, and the company repurchased a strong $155 million in units during the second quarter. The partnership currently has approximately $657 million remaining under its board authorization and that kind of buying by management tends to keep a bid under the stock price.
Investors receive a 9.04% distribution. The $34 Barclays price target compares with the $33.06 consensus for MPLX stock, and Friday’s close at $31.18.
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ONEOK
The solid price of natural gas over the past year has helped to lift this top energy company. ONEOK Inc. (NYSE: OKE) primarily engages in natural gas transportation, storage and natural gas and natural gas liquids (NGLs) gathering, processing and fractionation in the Bakken, Mid-Continent and Permian. The company recently closed the roll-up of its underlying master limited partnership, ONEOK Partners.
The company has a strong presence in the Oklahoma SCOOP/STACK (NGL gathering/takeaway system, G&P), the Williston Basin (G&P, NGL takeaway) and the Permian Basin (NGL gathering, NGL takeaway, natural gas takeaway), which analysts feel provides high-return growth opportunities.
Many on Wall Street remain very positive on the company’s primarily fee-based earnings, which account for 90% of total earnings.
Investors receive a 5.78% dividend. Wells Fargo has set a $72 price target. That is well above the consensus target of $52.47. ONEOK stock closed at $64.72 a share on Friday.
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These four outstanding blue chip stocks are offering growth and income investors solid entry points and come with big and, most importantly, reliable dividends. It is very possible that the overall market could see some profit-taking after the big moves over the past couple of weeks, so buying partial positions now may be the best idea.
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