4 Blue Chip Dividend Growth Stocks Trading Under 12 Times Forward Earnings


One area of the market that has lagged dramatically over the past year has been the dividend-paying stocks. While some point to the threat of a spike in long-term interest rates as a result of the Federal Reserve moves, the chances of that are indeed small. The consensus of Wall Street strategists is that the moves higher in the fed funds rate will be in very small amounts and at a very measured pace, almost a snail’s pace.

So what could be better for growth and income investors than top blue chip stocks that pay solid dividends and trade under 12 times 2016 earnings estimates? We ran a screen on the Merrill Lynch research universe looking for stocks that fit that profile. We found four companies that match perfectly, and they are rated Buy at Merrill Lynch.

Delta Air Lines

This company consistently ranks high with Wall Street. Delta Air Lines Inc. (NYSE: DAL) and the regional Delta Connection carriers offer service to 334 destinations in 64 countries on six continents. Headquartered in Atlanta, Delta employs nearly 80,000 employees worldwide and operates a mainline fleet of more than 700 aircraft. Wall Street analysts have long lauded that Delta has the most extensive hedging policy among the airlines and owns and operates a refinery in addition to a sizable hedging book. Trading at a low 8.8 times 2016 estimated earnings, the stock is right in the metrics that look so solid.

China Eastern Airlines and Delta signed an agreement earlier this year to expand their partnership and better connect Delta’s global network with one of the leading airlines in China. The agreement will include a $450 million investment by Delta to acquire a 3.55% stake in China Eastern.

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Delta investors receive a 1.23% dividend. The Merrill Lynch price target is $60. The Thomson/First Call consensus price objective is slightly higher at $61.43. The stock closed most recently at $50.63.


This company is in the automobile sector and looks very inexpensive at current levels. Despite all the recall troubles and litigation issues, hedge funds and mutual funds are continuing to stick with General Motors Co. (NYSE: GM), as many view the stock as very undervalued. GM trades just below 8.8 times estimated 2016 forward earnings. Like Ford, GM 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.

With the company facing continued possible punitive damages over ignition switches, there will continue to be a headline risk cloud over the stock. Long-term patient investors that can look beyond current issues may stand to make outstanding money on the auto giant.

GM investors receive an outstanding 4.04% dividend. The Merrill Lynch price target for the stock is $44. The consensus target is lower at $41.50. Shares closed Monday at $35.67.


This stock trades at a very low 10.8 times estimated 2016 forward earnings. JPMorgan Chase & Co. (NYSE: JPM) is expected to benefit from commercial loan growth and an upturn in capital spending. Wall Street analysts agree that the stock seems attractively valued on estimated price-to-earnings and a very solid price-to-book value. Some on analysts have cautioned that last year’s divestiture of the physical commodities business could provide an earnings headwind throughout this year.

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Improvement in loan growth, solid but volatile equity capital markets, and a steady increase in deposits will be a solid plus. Trading at a discount to many of the large cap banks on 2015 and 2016 earnings estimates helps upside potential as well. With $2.6 trillion in assets on a worldwide basis, and one of Wall Street’s savviest leaders in Jamie Dimon, the stock is a solid buy for investors.

JPMorgan investors are paid a 2.62% dividend. The Merrill Lynch price target is $73, and the consensus target is $72.44. Shares closed on Monday at $67.39.


This top telecommunications company recently did away with some phone incentives and is also on the Merrill Lynch US1 list. Verizon Communications Inc. (NYSE: VZ) is a global leader in delivering the digital world. Verizon Wireless operates America’s most reliable wireless network, with 109.5 million retail connections nationwide. Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber optic network and delivers integrated business solutions to customers worldwide.

Wall Street has applauded Frontier’s acquisition of Verizon’s wireline operations in California, Florida and Texas, which is expected to be completed at the end of March 2016. Many feel that focusing on the higher margin segments at Verizon makes sense, and the sale to Frontier is a huge cash boost to the balance sheet. Plus, trading at a low 11.3 times 2016 estimated earnings, the stock is cheap.

Verizon investors receive a massive 5% dividend. The $55 Merrill Lynch price is higher than the consensus price objective of $50.41. Shares closed Monday at $45.30.

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It is very possible that the market will take a far greater interest in valuations and dividends over the next year. With the indexes likely to trade sideways over the next few years, these could be the perfect additions to growth and income portfolios.

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