For five years now, investors and savers have faced the lowest interest rates since the 1950s. Wall Street pundits breathlessly gush over the fact that small and large investors are reaching for yield, and the damage that it can ultimately cause. While there certainly is a degree of truth in that, the increase in rates should be very slow and gradual over the next three to five years, and cautious income investors should be able to manage the increases.
A new research report from UBS takes a broad look across all asset classes the analysts cover, looking for the best current income ideas. We highlight and update some their top picks by asset class.
Dominion Resources Inc. (NYSE: D) is on the UBS Dividend Rulers stock list and has been on fire as investor demand for utilities has grown this year. The company raised its dividend by 7% in January and the UBS team thinks that the company’s natural gas infrastructure should drive solid earnings and dividend growth. Investors receive a 3.4% dividend. UBS has a $71 price target for the stock. The Thomson/First Call consensus price target is pegged at $71.30. Dominion closed Monday at $70.04 a share.
Intel Corp. (NASDAQ: INTC) is a Neutral-rated name from UBS, and like Dominion it is on their Dividend Ruler stock list. The stock has been caught in a ratings tug-of-war on Wall Street, but many firms believe the Silicon Valley giant is poised to breakout of their multiyear slump, especially after lifting earnings expectations for the rest of the year.
A new commitment to smartphone and mobile applications, combined with a possible resurgence of PC growth this year may make Intel one of the best large-cap value stocks to buy. Intel trades at a very low 13.5 times forward earnings. Investors are paid a solid 3.4% dividend. UBS has a $32 price target, while the consensus target is $29.64. Intel closed Monday at $30.23.
Top preferred securities make an excellent addition to income portfolios. Its trades on listed exchanges and can be easily bought and sold. The securities have solid credit quality and can appreciate in price. One note, many are callable, usually at the $25 level and the symbols can vary. It is important to check with your financial advisor or brokerage firm for details on these securities.
Citigroup Preferred J is a solid preferred to buy. The security has a 7.125% coupon and is trading above its $25 issue price. At that level the yield to call (which is $25) is posted at a 6.52%. That figure is paid quarterly to investors. It is a fixed to float security, which means at one point the yield will be based on floating scale, typically a LIBOR plus figure. This makes good sense in an environment where rates can go higher. Citi Preferred J closed Wednesday at $27.34.
Morgan Stanley Preferred E is another quality preferred backed by a major Wall Street firm. The Morgan Stanley security is also a 7.125% coupon, fixed to floating security. It was also trading above the $25 issue price for a yield to call of 6.35%. The dividend is paid on a quarterly basis. Morgan Stanley Preferred E closed at $28.06.