One question that always seems to come up these days is when interest rates are going higher. The best answer to that is maybe by the end of the year. But back to levels where investors who need safe income from FDIC-guaranteed bank certificates of deposit can get return? Maybe not for years.
So the question becomes how can investors that need income get higher levels without exorbitant risk?
The answer to that question is that it is hard to reach for yield and not have an increase in risk, so the next question is how much risk you can afford. For very conservative accounts, the answer is not much, so utilities and telecoms are a decent way to get higher yields. For investors with a touch more risk tolerance, a variety of equity securities may provide the answer.
We screened the Merrill Lynch research universe for companies that offer higher yields and are rated Buy. Three of them hit the mark.
Again, these are only suitable for more aggressive investors as these are generally riskier companies than traditional blue chips.
This is a rural local exchange carrier that the Merrill Lynch team has remained positive on. Frontier Communications Corp. (NASDAQ: FTR) offers broadband, voice, video, wireless internet data access, data security solutions, bundled offerings, specialized bundles for residential customers, small businesses and home offices and advanced business communications for medium and large businesses in 28 states. Its approximately 17,800 employees are based entirely in the United States.
Wall Street analysts note that the company has taken broadband share in almost 80% of operating markets last year. The company’s $8.5 billion acquisition of Verizon’s wireline operations that were providing services to residential, commercial and wholesale customers in California, Florida and Texas are a huge difference maker when it comes to the Merrill Lynch 2016 and 2017 estimates.
The analysts increase 2016 EBITDA numbers from $2.129 billion to $3.751 billion. The 2017 EBITDA numbers go from $2.121 billion to $4.308 billion. The company is expected to report earnings in early May. The analysts also feel that company will be generating cash flow to cover the large dividend by more than two times.
The company reported a better than anticipated first-quarter EBITDA number and guided in line to ahead of Wall Street estimates on post-Verizon deal cash flow. Frontier is the highest yielding non-energy component in the S&P 500.
Frontier investors receive a huge 7.85% dividend. The Merrill Lynch price target is $9, well above the Thomson/First Call consensus target of $6.25. The stock closed Wednesday at $5.35.