The best on Wall Street when it comes to portfolio management always have at least one certain positive trait that they share. They stay faithful to their portfolio metrics and guidelines. If a company trades out of portfolio parameters it is removed. Conversely, if a company being screened as an addition fits the characteristics required, it may be added. This is the kind of discipline investors are looking for.
In a recent research report, Merrill Lynch sticks to it parameters for the firm’s High Quality and Dividend Yield portfolio and makes two changes for June: adding Raytheon Corp. (NYSE: RTN) and dropping Target Corp. (NYSE: TGT). The portfolio seeks to find high-quality stocks with secure and above-market dividend yields.
We also screened the portfolio for the three highest yielding members.
Raytheon has a diversified mix of business and posted solid first-quarter numbers, and it is the newest addition to the portfolio. The company is an industry leader in defense, government electronics, space, information technology and technical services. It operates in four principal business segments: Integrated Defense Systems, Intelligence, Information and Services, Missile Systems, and Space and Airborne Systems.
Top retailer Target was removed from the portfolio as the company’s debt to equity is now higher than the S&P 500. It operates as a general merchandise retailer in the United States, offering household essentials, including pharmacy, beauty, personal care, baby care, cleaning and paper products; music, movies, books, computer software, sporting goods and toys; electronics, such as video game hardware and software; and apparel for women, men, boys, girls, toddlers, infants and newborns; as well as intimate apparel, jewelry, accessories and shoes.
Target’s stock has plunged since a controversial corporate decision over bathrooms was implemented, but it remains Buy rated at Merrill Lynch.
Raytheon investors are paid a 2.22% dividend. The Merrill Lynch price target for the stock is $150, and the Thomson/First Call consensus price target is set at $141.76. The shares closed most recently a $132.16 apiece.
Target shareholders receive a 3.28% dividend. Merrill Lynch has a $95 price target. The consensus estimate is$77.47, and the shares closed Thursday at $68.32.
The following are the three highest yielding members of the portfolio currently also rated Buy at Merrill Lynch.