UBS's Most Preferred Consumer Discretionary Stocks Pay Solid Dividends
With many investors nervous about the market after two 10% corrections in the past year, the consumer staples stocks have run up big and are now trading at high multiples. The consumer discretionary stocks on the other hand have suffered and are far cheaper on a multiple basis. Many on Wall Street think they are solid buys and underappreciated.
One firm we cover here at 24/7 Wall St. is UBS, which is cautiously positive on the overall sector. The firm sees the sector as moderately overweight, and the analysts are attracted to the companies with strong brands and content with pricing power, as well as to the companies that are aligned to the needs and spending trends of the millennial consumer, which they see as a driving economic force for years to come.
We found four stocks in the Most Preferred Consumer Discretionary category that pay top dividends and are also offering investors solid entry levels.
This entertainment giant has suffered this year, as many have worried about subscriber losses at ESPN. Walt Disney Co. (NYSE: DIS) operates broadcast and cable television networks, domestic television stations and radio networks and stations, and it is involved in the television production and television distribution operations. Its cable networks include ESPN, Disney Channels, and ABC Family, as well as UTV/Bindass and Hungama.
The company also owns and operates the Walt Disney World Resort in Florida; the Disneyland Resort in California; Disney Resort & Spa in Hawaii; Disney Vacation Club, Disney Cruise Line and Adventures by Disney; and Disneyland Paris, Hong Kong Disneyland Resort and Shanghai Disney Resort. It also licenses its intellectual property to a third party for the operations of the Tokyo Disney Resort in Japan.
In addition to opening a brand new $3 billion theme park in Shanghai, China, the company also recently announced that Netflix had reached an exclusive deal with Disney giving it streaming rights to Disney films, a win-win for both companies.
Disney shareholders are paid a 1.4% dividend. The Thomson/First Call consensus price target is posted at $110.11. The stock closed Tuesday at $99.22.
This company remains the undisputed leader in the home improvement retail category. The Home Depot Inc. (NYSE: HD) is the world’s largest home improvement specialty retailer, with 2,270 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. The Home Depot stores sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me (DIFM), and professional customers.
With the mild winter due to the El Niño effect, and spring in full bloom, some people think that can be a benefit to Home Depot and other home improvement companies. In addition, the continued strength in the housing market could also bode well for the company. Earnings per share gains have consistently been in the 15% to 20% range and a consensus of analysts is forecasting earning increases to continue to grow at about 15% annually for another two to three years.
Home Depot investors are paid a 2.09% dividend. The consensus price objective is $147.41. Shares closed Tuesday at $132.12.