Merrill Lynch's Top Cheap Dividend Stocks for Q3

Every quarter, many of the top firms we cover on Wall Street come out with some top picks for the next three months, and often these ideas turn out to be solid short-term and even long-term plays. With the added volatility that the current geopolitical situation has brought in, now is a good time to add quality stocks in front of what is usually a very dicey time of the year for equities.

We reported on the Merrill Lynch top U.S. Ideas for the third quarter when they were released as the quarter was starting. Now with just six weeks left in the quarter, we thought it was a good idea to screen the picks for those that looked like solid third quarter and end-of-the-year plays. We found four dividend plays that make good sense for investors to look at.

D.R. Horton

This is one of the highest volume builders in the United States. D.R. Horton Inc. (NYSE: DHI) is the largest public builder by closings in the country, delivering roughly 40,000 homes in fiscal 2016. The company is positioned in 78 metropolitan markets in six major regions, and it develops single-family homes for first-time and move-up buyers.

Approximately 75% of revenue is derived from the Southeast, South Central and West regions. The company also provides mortgage financing and title agency services to homebuyers. D.R. Horton posted solid results for the first quarter, and the second quarter is expected to be solid as well as mortgage rates remain low.

Shareholders are paid a 1.13% dividend. The Merrill Lynch price target is $43, and the Wall Street consensus target is $38.71. The shares traded Thursday morning at $35.60.


This is a midcap bank that makes good sense now. KeyCorp (NYSE: KEY) operates as the bank holding company for KeyBank National Association, which provides deposit, lending, cash management and investment services to individuals, small and medium-sized businesses.

The company also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets banner.

The analysts like the larger regional banks, noting that valuations look very reasonable and cost saving plans are helping to make forward estimates look very achievable. With overall credit remaining solid, earnings and loan, deposit and fee growth all are positive metrics for the bank.

Investors are paid a 2.15% dividend. The $22 Merrill price target compares with the consensus target of $20.62. The shares traded Thursday near $17.70.


This company has a diversified mix of business and remains a favorite at Merrill Lynch. Raytheon Co. (NYSE: RTN) is an industry leader in defense, government electronics, space, information technology and technical services. The company operates in four principal business segments: Integrated Defense Systems, Intelligence, Information and Services, Missile Systems, and Space and Airborne Systems.

Top Wall Street analysts have noted that the strong demand for missiles is a big positive for the company as domestic bookings were up 18%.  The company reported solid second-quarter results and the analysts said this when results were released:

Raytheon reported second quarter earnings-per-share from continuing operations of $1.89, above the Bloomberg mean $1.75 and the Merrill Lynch estimate of $1.71. Management raised its 2017 EPS, sales and bookings outlook. The company increased its 2017 estimated bookings guidan by $500 million to $26-27 billion on stronger than expected bookings and order pipeline.

Shareholders receive a 1.79% dividend. Merrill Lynch has a $200 price objective, while the consensus target is $191.65. Shares traded recently at $178.75.


This company has benefited big time from the wealth effect of the rising stock market. Tiffany & Co. (NYSE: TIF) is a specialty retailer selling jewelry (92% of sales), watches, leather goods, crystal, china, silverware and accessories. The company sells primarily through its fleet of retail stores and the internet. The Tiffany brand is associated with high-end offerings and is well-known around the world.

The company just reported outstanding earnings, helped in part by higher sales of wholesale diamonds and strong demand for its fashion and designer jewelry in Japan. The company, which gets about 15% of its revenue from Japan, saw comparable sales rise 3% in the region in the reported quarter.

Shareholders are paid a 2.26 dividend. The Merrill Lynch price target is $110. The consensus target is $94.67, and shares traded at $90.15 early Thursday.

These four solid stocks to buy for the rest of the quarter remain top ideas at Merrill Lynch. Once again, investors may want to scale buy shares and see how the fall trading unfolds, with the market seemingly fully valued.