With a general consensus that at some point this year, maybe as soon as this summer, interest rates are poised to rise, owning dividend yield stocks is a somewhat contrarian idea. In a new and wide-ranging report from Bank of America Merrill Lynch, one of the firm’s contrarian ideas is just that, owning dividend yield stocks. Another idea is owning large cap stocks, which some have said should be sold in favor of more domestic-oriented stocks, like small and mid-cap companies.
We combined the two Merrill Lunch ideas that secular contrarians should be long, or own now, and screened the Merrill Lynch stocks universe for large-cap dividend yield stocks that are rated Buy at the firm. We found five top stock to buy, all of which yield an almost a full percentage point more than the 10-year Treasury.
Altria Group Inc. (NYSE: MO) is a top tobacco stock to buy on Wall Street, and its Marlboro brand is one of the most recognizable in the world. The company has solid downside support owing to the generous dividend yield, which remains at a huge premium in relation to the 10-year Treasury rate. Cash flow generation and the return of cash to Altria shareholders remain key facets of the company’s total shareholder return, and the analysts expect support of the strong dividend, which they believe will continue to climb. The company recently reaffirmed solid 2015 guidance at the Consumer Analyst Group of New York Conference.
Altria shareholders are paid a 3.80% dividend. The Merrill Lynch price target for the stock is $60. The Thomson/First Call consensus price target is $56.78. Altria closed Monday at $55.51 a share.
General Motors Co. (NYSE: GM) is a top automobile maker that is rated as a Buy at Merrill Lynch. Despite all the recall troubles, hedge funds and mutual funds are continuing to stick with the company, as many view the stock as very undervalued. GM trades at a low 8.4 times estimated 2015 forward earnings. Like Ford, it has benefited from incredible sales in China to boost revenue. GM invested heavily in China decades ago and grabbed a big chunk of what is now the world’s largest auto market. The company sold 3.16 million vehicles in 2013, which was an increase of 11%, and right at 3.5 million last year.
GM investors are paid a very respectable 3.2% dividend. The Merrill Lynch price target is $51. The consensus target is lower at $41.81. GM closed Monday at $37.69.
Pfizer Inc. (NYSE: PFE) is one of the most popular health care stocks among hedge funds. After a very slow 2014, the stock is up almost 10% this year, despite a so-so fourth-quarter earnings report. Pfizer recently announced a gigantic $15.2 billion purchase of Hospira, a top provider of sterile injectable drugs — including those used for acute care and cancer treatment — infusion technologies and biosimilars, which are subsequent versions of drugs whose patents have expired. In other recent solid news for Pfizer, the company’s drug Ibrance was approved for advanced breast cancer by U.S. regulators more than two months ahead of schedule, letting the drug maker proceed with one of its most promising new blockbusters.
Pfizer investors are paid a solid 3.25% dividend. The Merrill Lynch price target is $36, and the consensus price objective is $35.83. The stock closed Monday at $34.39.
Procter & Gamble Co. (NYSE: PG) is a solid consumer staples stock for investors to consider. The company sells lots of run-of-the-mill household items that are essential for everyday life. It is not content to stand pat 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 and that would bode well for the future.
Shareholders are paid a 3.02% dividend. Merrill Lynch has a $95 price target, a touch higher than the $93.21 consensus target. The stock closed Monday at $85.39 a share.
Verizon Communications Inc. (NYSE: VZ) is a top telecommunications company to Buy at Merrill Lynch, and it is also on the firm’s US 1 list. Verizon offers investors consistent and steadily growing dividends. The company recently purchased $10.4 billion worth of new spectrum during the recent government auctions, and it is planning to continue to expand and improve the company’s 4G LTE network, which it bills as the nation’s largest and best.
Verizon investors are paid an outstanding 4.5% dividend. The Merrill Lynch price target is $55, while the consensus target is $51.50. The stock closed Monday at $48.77.
While none of these top blue chips really seem like contrarian calls, they actually have been somewhat neglected for the hot tech and biotech companies. They give investors solid total return upside potential and should hold up better when the market takes the next big downturn.