We have talked about the underperformance of dividend-yielding stocks a great deal over the past two months. The brutal beat down of the markets since the start of the year, the recent rally notwithstanding, have refocused investors on the merits of quality companies that pay consistent dividends.

In a new research report, Merrill Lynch adds three companies to its High-Quality Dividend Yield Screen of stocks. In their own words: “The screen seeks to identify high quality stocks with secure and above-market dividend yields that are aligned with our analysts’ fundamental outlook.” This is an ideal group of stocks for long-term, patient total return investors as they are outperforming the S&P 500.

Here are the three stocks the Merrill Lynch team added. All are rated Buy at the firm.

Procter & Gamble

This stock is still down since this time last year, partly because the company has a very large 65% of sales directed to foreign customers. That should improve as the dollar run looks to be slowing down. Procter & Gamble Co. (NYSE: PG) is added to the Merrill Lynch screen and is a solid consumer staples stock to consider, especially for conservative investors. The company sells lots of run-of-the-mill household items that are essential for everyday life, but it is not content to stand on its laurels.

P&G actually is 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. While currency headwinds have weighed on recent earnings and projections, the dollar may be topping out this fall, and that would bode well for the future.

The company posted very solid fourth-quarter results in January, and despite earning expectations that have been lowered somewhat, the Merrill Lynch team feels comfortable that the stock can continue the current positive momentum.

Shareholders are paid a very solid 3.21% dividend. Merrill Lynch has as $85 price target, and the Thomson/First Call consensus price target is $83.10. The stock closed Wednesday at $82.55 per share.

Target

This top retailer was added to the screen and could be a beneficiary of the much lower gasoline prices. Target Corp. (NYSE: TGT) operates as a general merchandise retailer in the United States. It offers household essentials, including pharmacy, beauty, personal care, baby care, cleaning and paper products; music, movies, books, computer software, sporting goods and toys; electronics, such as video game hardware and software; and apparel for women, men, boys, girls, toddlers, infants and newborns, as well as intimate apparel, jewelry, accessories and shoes.

The company also provides food and pet supplies, comprising dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce and pet supplies, and home furnishings and décor consisting of furniture, lighting, kitchenware, small appliances, home décor, bed and bath, home improvement and automotive products, as well as seasonal merchandise, such as patio furniture and holiday décor.
Target shut down all its Canadian locations back in May of last year, putting about 17,600 employees out of work. While difficult, it closes a very unprofitable and ill-fated chapter, as well as helps the company to move forward and concentrate on the very profitable U.S. business. Target has increased the focus on the Internet presence for online sales, which currently totals right about 3% of total sales.

With its solid earnings, many Wall Street firms raised estimates, as it appears some of Target’s strength is coming at the expense of the company’s big-box competitor Wal-Mart. With low fuel prices and job growth, consumer purchasing should continue to grow.

Target shareholders are paid a 2.76% dividend. The Merrill Lynch price objective is $95, while the consensus target is set at $83.82. Shares closed most recently at $81.10.

Qualcomm

This top technology stock was added to the list, and it has totally underperformed this year and has solid upside potential. Qualcomm Inc. (NASDAQ: QCOM) is still a Wall Street favorite, and many are sticking to their guns, basically saying that trading at current levels (12.6 times estimated 2016 earnings), it may be a tremendous long-term value. Qualcomm is a quality tech company with recurring royalty revenue and a strong footprint, so patient investors may fare very well.

The growth of 3G mobile technologies in emerging markets, like China and India, has had a positive impact on Qualcomm and could be a difference maker going forward. Qualcomm is and has been for years a market leader in the development of 3G CDMA (Code Division Multiple Access) technologies. The company recently developed an LTE chipset that supports SCDMA (Synchronous Code Division Multiple Access) technology. China’s mobile network runs on this, and it could provide the company with a huge leg up in years to come. The company signed numerous big licensing deals recently in China that gave the stock a solid boost.

The company also recently announced a joint venture with Japan’s TDK company that will enable delivery of RFFE (radio frequency front-end) modules and RF (radio frequency) filters to fully integrate systems for mobile devices and other fast-growing business segments. According to Qualcomm, the RFFE space is projected to be an $18 billion market by 2020.

Though the company recently posted strong fourth-quarter results, a licensing dispute with Japanese technology giant LG has surfaced, and Merrill Lynch feels the dispute could last through fiscal 2016. The firm does remain positive on the stock and reiterated their rating of Buy.

Qualcomm investors are paid a 3.63% dividend. The $75 Merrill Lynch price target is much higher than the consensus price objective of $57.64. Shares closed Wednesday at $52.85.

The double-play combination of growth potential and steadily increasing dividends has long been a winner for patient investors. These three stocks are a solid addition to an already very good line up at Merrill Lynch.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.