Investing

Jefferies Franchise Pick Stocks to Buy That Also Pay Big Dividends

Every firm we cover on Wall Street has a short list of the stocks that they like best. Usually the lists are comprised of companies that the firms feel have a substantial upside to the current trading level. It is always a big benefit when the top stocks picks also pay shareholders a solid dividend. Dividends added to share price appreciation is called total return.

A new Jefferies research report presents the 19 stocks that make up the firm’s Franchise Picks list. We screened the list for the stocks that pay the highest dividends and came up with four that make good sense for growth and income investors now. All of course, are rated Buy at Jefferies.

AT&T

This company posted solid second-quarter numbers, and many on Wall Street think the third quarter will be good as well. AT&T Inc. (NYSE: T) is clearly one of the most ignored dividend plays on Wall Street. In fact, AT&T continues to be one of the most under-owned securities by active fund managers, according to Wall Street data. While growth has been admittedly slower over the past few years, the company continues to expand its user base. Also, strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans. That is an area that many on Wall Street believe could lead to some earnings weakness.

Late last month AT&T reiterated 2015 guidance for double-digit revenue growth and continued consolidated margin expansion. Management expects capital spending to increase sequentially and they also estimate that free-cash-flow could be better than $4.5 billion. Third-quarter wireless subscriber additions are also expected to come in slightly higher than many Wall Street estimates, and DirecTV saw positive video additions where many expected losses.

AT&T investors are paid an outstanding 5.67% dividend. The Jefferies price target is $40, and the Thomson/First Call consensus estimate is $37. Shares closed Friday at $33.14.

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AbbVie

This top global pharmaceutical stock also is a Jefferies franchise stock pick. AbbVie Inc. (NYSE: ABBV) is a research-based biopharmaceutical company formed in 2013 following separation from Abbott Labs. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries

With numerous clinical read-outs for the stock over the rest of 2015, many on Wall Street think that over time the stock could have anywhere from $15 to $25 per share upside from current levels. Many analysts feel that investors may not fully appreciate the earnings power of the company, even with a biosimilar Humira, given the incredible pipeline, the Pharmacyclics deal and an ability to adjust the cost structures.

Jefferies expects several updates on the Humira franchise in 2015, including more visibility on the issued and pending patent estate for Humira and an update on the clinical profile of “New Humira,” which is expected to launch in the last half of 2015. European Union approval is expected by the end of this month.

AbbVie investors are paid a very solid 3.70% dividend. The Jefferies price target is $90, among the highest on Wall Street. The consensus target is much lower at $75.64. Shares closed Friday at $55.64.

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