24/7 Wall St.

With the S&P 500 trading in a tight 3% range for almost three months, when there is a big move up or down it’s very possible it could be violent, not unlike the one we experienced last August. While the potential for the Federal Reserve to raise rates was somewhat lessened after Friday’s horrible jobs numbers, the Bank of Japan and the vote in Great Britain all could stir the proverbial pot. In addition to owning some sort of portfolio protection, investors may want to move to less aggressive stocks.

We screened the Jefferies Franchise Picks stock list for the dividend paying stocks that may offer investors some insulation from a large increase in volatility. We found four that look like good additions now.

AT&T

This company had an outstanding first quarter from a stock price standpoint and could be poised to go higher. 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 its shares trading at a very cheap 12.5 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.

The company’s first-quarter revenue rose 24% versus the year-earlier period primarily due to the July 2015 acquisition of DirecTV for $49 billion in equity value. The company added 2.3 million wireless subscribers during the first quarter. About 328,000 of the additions were DirecTV net adds. The company’s Entertainment Group broadband grew with 186,000 IP broadband net additions.

Jefferies noted that after evaluating three scenarios that address and combat cannibalization, certain new initiatives should be impactful. As over-the-top (OTT) video becomes more prevalent, the analysts examined the per-subscriber economics relative to that of traditional video, and highlight key implications in a streaming video world. With AT&T set to launch new offerings later this year, the analysts provide a case study highlighting potential opportunities and risks. They see the potential for modest accretion in 2020, with further upside should AT&T successfully minimize cannibalization within its existing base.

AT&T investors receive a 4.9% dividend. The Jefferies price target for the stock is $42. The Thomson/First Call consensus target is $39.57. Shares closed Monday at $39.34.
AbbVie

This is the top global pharmaceutical stock at Jefferies. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. 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.

One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which generated $14 billion in sales in fiscal 2015. That was the most any drug has recorded during a single year and represents a gigantic part of the company’s overall earnings. The problem is that biosimilars and generics are itching to enter the market with Amgen leading the charge, and some Wall Street analysts project that AbbVie may have a difficult time stopping that trend.

The patent board recently instituted Coherus BioSciences’ Inter Partes Review against the Humira ‘135 patent. The outcome of the review is expected in 12 months. While most analysts remain positive on Humira duration, the expected litigation uncertainty could continue to create an overhang on the stock.

The stock sold off Monday on a downgrade from Cowen and disappointing Rova-T data for treating small cell lung cancer. AbbVie acquired this therapy via the Stemcentrx acquisition (for $5.8 billion in cash and stock) in late April, and this pushback in price may give investors a very solid entry point for the stock.

AbbVie investors receive a 3.63% dividend. The $90 Jefferies price target is higher than the consensus price target of $71.06. Shares closed Monday at $62.82.

Boeing

Shares of this top aerospace industrial are still down almost 10% since the beginning of the year. Boeing Co. (NYSE: BA), together with its subsidiaries, designs, develops, manufactures, sells, services and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services worldwide. The company operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support and Boeing Capital.

Top Wall Street analysts have increased confidence in continuing good demand, and they note that the company has made announcements in the past that support the thesis that the productivity and margins will continue to improve. 787 execution is good as the company works through the backlog, and cash flow looks to be strong with 787 deliveries and C-17 orders. Some Wall Street analysts also point to continued lower oil prices as a bullish indicator for the top carriers who are Boeing’s big customers.

Boeing investors receive a 3.31% dividend. Jefferies has a $165 price target, and the consensus target is $148.06. The shares closed trading on Monday at $131.90.

WestRock

Last summer saw the merger of two top packaging and container companies, and that could provide an outstanding opportunity for investors, as the stock has been absolutely mauled since the merger. WestRock Co. (NYSE: WRK) is the completed and merged entity that combined old Rock-Tenn and MeadWestvaco.

WestRock has become the second-largest U.S. packaging company, valued at $10.7 billion, trailing only International Paper and its market capitalization of just under $15 billion. WestRock is expected to generate net sales of $15.7 billion and adjusted EBITDA of $2.9 billion. This includes the impact of $300 million in estimated annual synergies, to be achieved over three years.

Jefferies notes that the company announced a stock repurchase program last year of 40 million shares, which is equal to 15% of the shares outstanding. It also announced a very generous 17% increase in the company dividend. The current dividend will be $1.50 per share, or $0.375 per quarter.

WestRock trades with a more than 10% free-cash-flow yield, and owing to demand resiliency and lower spending, the Jefferies team believes cash flow can hold up even in a tougher economic environment. They also think that the stock could continue its march off lows printed back in February if container-board prices hold, which they have for the second month in a row.

WestRock investors receive a 3.73% dividend. The Jefferies price target is $56, and the consensus target is $70.56. Shares closed Monday at $40.24.

Moving some capital to lower volatility stocks makes sense as we head into summer, on top of all the potential headline issues we mentioned, the political rhetoric is also heating up, and that will be in our face until November.