Investing

4 Safe Dividend Stocks to Buy as 2016 Starts With Market Rout

To most that have been involved in the markets, Monday’s massive sell-off to start the 2016 trading year was very surprising. Typically the markets trade up in early January as shares that were jettisoned for tax purposes are often added back to portfolios. That wasn’t the case Monday, and it could be sending a very ominous signal for investors about what’s in store the rest of the year.

With that in mind, bonds are volatile, and cash yields no return, so what are investors to do? One great move is to look for safe stocks that pay solid dividends. That often means companies where the demand rarely drops, despite economic and market conditions. We screened the Merrill Lynch research database and found four stocks rated Buy that fit perfectly in that category.

AT&T

This company posted very solid third-quarter numbers, and many on Wall Street think the fourth quarter will be good as well. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE.

The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions. With the stock trading at a very cheap 11.7 times estimated 2016 earnings, the company continues to expand its user base. Strong product introductions from smartphone vendors have not only driven traffic, but increased device financing plans.

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 came in higher than many Wall Street estimates, and DirecTV saw positive video additions where many expected losses.

AT&T investors receive an outstanding 5.59% dividend. The Merrill Lynch price target for the stock is$40, and the Thomson/First Call consensus price target is $37.16. Shares closed Monday at $34.35.


Altria

The maker of tobacco products and wine posted very solid numbers through the first half of last year and the fourth quarter is looking good as well. Altria Group Inc. (NYSE: MO) is a top mega-cap consumer discretionary stock to buy on Wall Street, and its Marlboro brand remains one of the most recognizable in the world.

Many Wall Street analysts concede that the stock 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 Altria’s total shareholder return. The analysts expect support of the strong dividend, which they believe will continue to climb, and strong share repurchase activity.

Third-quarter earnings were very strong and exceeded the prior-year quarter figure by more than 8%, backed by strong performance of the core tobacco business and the leading premium brands. To diversify away from cigarettes and cigars, Altria has expanded its portfolio into new categories, like wine, e-cigarettes and a 27% stake in brewer SABMiller, which together generated nearly 10% of its pre-excise tax revenue last quarter. With SABMiller being acquired, Altria will have a huge stake in the world’s biggest beer company.

Altria investors receive a 3.95% dividend. Merrill Lynch has a $66 price target, and the consensus estimate is $64. The stock closed Monday at $57.39.