“It’s different this time.” It is a phrase uttered every single time nobody can explain how markets can rally past the point of good reason, and at this juncture, they clearly have. Almost eight years into a bull market, with multiples at among the highest levels ever, and many strategists claiming the market has even higher to go, things are getting more than a little stretched. With inflation, higher interest rates and a host of potential volatility events around the corner, it makes sense now to play it safe.
Common sense would dictate looking for value stocks, but they outperformed growth last year, and growth appears to be the area to look at now. So with a pricey market, the place to look is for growth companies that are paying a big dividend. We screened the Merrill Lynch research database for stocks rated Buy with low to medium volatility risk that pay big dividends. We found five that check all the boxes.
This company had an incredible run last year but is off over 5% since the beginning of this year. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE. The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions.
With its shares trading at a very cheap 14.3 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.
AT&T has several major catalysts likely to drive strong network traffic demand: DirecTV Now and Mobile, “Data-Free TV” for DirecTV/U-Verse subscribers and increasing penetration of unlimited data plans. Many on Wall Street believe that the company is well-positioned to address ongoing traffic requirements, with additional LTE capacity available and the ability to leverage small cell deployments.
The company posted fourth-quarter adjusted earnings per share in line with analyst expectations, though its revenue fell short of Thomson Reuters consensus estimates and also was a slight drop from sales during the year-earlier quarter.
AT&T investors receive a 4.77% dividend. The Merrill Lynch price objective for the stock is $46. The Wall Street consensus target price is $41.55. Shares closed Wednesday at $41.12.
Shares of this top pharmaceutical stock with very solid growth potential are down over 15% since last August. Abbott Laboratories (NYSE: ABT) is a leading diversified global health care company that develops, manufactures and markets branded generics, medical devices, nutritional products and diagnostic solutions.
The company recently agreed to acquire the equity in Minnesota-based Tendyne Holdings that it does not already own for $250 million plus future payments tied to regulatory milestones. Wall Street likes the purchase and the way the company is putting its substantial balance sheet to work.
The company also offers a diversified large cap play as earnings are split between five well-positioned business segments: Nutritionals (31.0% of revenues), Vascular (13.0%), Generic Pharmaceuticals (20.0%) and Diagnostics (25.5%) and Diabetes (10.5%).
Last year, CEO Miles White, who has been at the firm for over three decades, bought a stunning $45.5 million worth of company stock, which added to his already substantial holdings. The purchase made him one of the top 100 shareholders.
Abbott Labs investors receive a 2.4% dividend. Merrill Lynch has a $50 price target, and the consensus target is $47.23. Shares closed Wednesday at $44.00.