Jefferies Has 4 Sustainable Income Stocks to Buy Now

August 21, 2015 by 247lee

Investors are getting worried, and perhaps it is time they should. The market gains, which are now gone, this year have been driven almost exclusively by a few very high-priced momentum stocks. The lion’s share of the quality companies have traded sideways to down, and energy stocks have taken a horrific beating, most now trading at bear market sell-off levels.

A new report from Jefferies focuses on what they call the Sustainable Income stocks. The Jefferies team ran a screen that looks for five specific characteristics. Five stocks fit the qualifications listed below, and four had the best yields.

  1. Market capitalization greater than $1 billion.
  2. Dividend yield at least 2.5%. The current S&P yield is at 2%.
  3. At least 5% dividend growth last year, and an estimated 5% for this year.
  4. Dividend payouts of at least 100%
  5. Solid upside to the Jefferies price target.

PepsiCo

This top consumer staples stock fits the bill. PepsiCo Inc. (NYSE: PEP), a global snack and beverage company, manufactures and markets salty and convenient snacks, carbonated and noncarbonated beverages, and foods. Divisions were restated in 2008 to include Pepsi Americas Foods (including Frito-Lay), Pepsi Americas Beverages and Pepsi International. Key foreign sales exposures include the United Kingdom, Mexico, India and China. Brands include Pepsi Cola, Mountain Dew, Gatorade, Tropicana, Frito-Lay, Quaker, SoBe and Aquafina.

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The company recently announced a partnership agreement with Starbucks to market, sell and distribute ready-to-drink Starbucks coffee and energy beverages in Latin America. PepsiCo will use its expansive distribution network and local expertise in the region to sell and distribute the Starbucks beverages. These beverages will be available in 2016, across the Caribbean, Chile, Colombia, Costa Rica, Guatemala, Mexico, Panama, Peru, Puerto Rico and Uruguay.

PepsiCo investors are paid a very solid 2.91% dividend. The Jefferies price target is $110, with the Thomson/First Call consensus target at $105.67. The stock closed Thursday at $97.98.

Prudential Financial

This top financial services and insurance company also makes the Franchise Picks list at Jefferies. Prudential Financial Inc. (NYSE: PRU) has more than $1 trillion of assets under management as of December 31, 2014, with operations located in the United States, Asia, Europe and Latin America. Prudential’s strong and diverse sales force helps individuals and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management.

The company reported second-quarter earnings that beat Wall Street analysts’ estimates. Revenue rose by 12% year-over-year to $12.5 billion, also exceeding consensus estimates. The company reported net income of $1.4 billion, up by 29% as compared to the second quarter of the previous year. Prudential also is on track for an estimated $1 billion in buybacks for 2015, and an estimated $1.5 billion for next year.

Prudential shareholders are paid a 2.7% dividend. The Jefferies price target is $100, and the consensus target is $98.06. Shares ended Thursday at $84.89.

Packaging Corp. of America

This company has seen some insider selling recently. Packaging Corporation of America (NYSE: PKG) manufactures and sells containerboard and corrugated packaging products in the North America and Europe. The company’s Packaging segment offers various corrugated packaging products, such as conventional shipping containers used to protect and transport manufactured goods; multicolor boxes and displays that help to merchandise the packaged product in retail locations; and honeycomb protective packaging. This segment also produces packaging for meat, fresh fruit and vegetables, processed food, beverages and other industrial and consumer products. Two other segments also contribute significant revenue.

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The company posted solid second-quarter revenues of $114 million, and had net income of $1.16 per share. The results topped Wall Street estimates. The Jefferies analysts also noted that the company’s Boise purchase in 2013 is still yielding benefits as they continue to improve operations.

Investors here are paid a solid 3.09% dividend. The Jefferies price target is posted at $82, and the consensus target is $79. The stock closed most recently at $71.15.

Boston Private Financial

This small cap financial company could hold solid upside for investors. Boston Private Financial Holdings Inc. (NASDAQ: BPFH) is a national financial services organization that owns wealth management and private banking affiliates with offices in Boston, New York, Los Angeles, San Francisco, San Jose, Atlanta and elsewhere. The company has a $7 billion private banking balance sheet and manages approximately $30 billion of client assets. It also provides strategic oversight and access to resources, both financial and intellectual, to support affiliate management, marketing, compliance and legal activities.

The company posted a solid second-quarter profit of $0.20 per share, beating the average estimate of five analysts. However, the bank holding company posted revenue of $87.7 million in the period, falling short of consensus forecasts. The Jefferies team likes the recent acquisitions and views the stock as a takeover target.

Boston Private investors are paid a 2.92% dividend. The Jefferies price target is $14.50, and the consensus figure is at $14. The stock closed Thursday at $12.24.

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Clearly these are not momentum stocks that will go down in flames if the market has a huge correction. The Jefferies team has done solid work for growth and income investors looking for good total return potential.