With the market starting to look very fully valued, and yields at record lows despite howls from pundits they were going higher, what are income and growth investors to do now? Selling and going to cash is not easy for most investors as the commission aspect always looms. One good idea is to look for stocks that pay solid and consistent dividends.
One area that has been beaten down, especially over the last couple of months is technology, and while the telecom sector has performed much better, there are still some very compelling companies to buy that pay outstanding dividends.
We screened the Merrill Lynch research universe and found five tech and telecom stocks yielding more than 4%. All are rated Buy.
After an outstanding first quarter from a stock price standpoint, this stock 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 14.3 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.
Last week Merrill Lynch reiterated its Buy rating on AT&T, along with a $46 price objective, raised from $42 in that call. That report was a post-Brexit investing theme with other companies with minimal exposure to the European and Brexit woes. They noted:
Analyst David Barden is raising his price objectives on AT&T (from $42 to $46) and Verizon (from $55 to $59). The price objectives are based on relative multiples versus the S&P 500 of 0.96x and 0.92x. The target relative multiples are based on the premium investors historically have paid for the relative fundamental stability and yield AT&T and Verizon offer during periods of economic and political uncertainty. The Brexit vote result was an unexpected event that has had immediate and will likely have lasting effects on sentiment. The upcoming US election only adds to uncertainty that could drive a continued flight to quality.
AT&T investors receive a 4.54% dividend. The Merrill Lynch price target for the stock is $46, and the Thomson/First Call consensus target is $39.56. Shares closed Thursday at $42.30.
This is a rural local exchange carrier that Merrill Lynch 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 8.55% dividend. The massive $9 Merrill Lynch price target compares with the consensus target of $6.27 and the most recent close at $4.91.