Long-time investors know the trading calendar pretty well, and the end of September historically has been very rocky for the market. In fact, the S&P 500 has traded lower 70% of the time during the final two weeks of September since 1980, according to research by CNBC. The research also shows that in that time, the index’s average return has been −1.3%. With all three major indexes hitting all-time highs yet again this week, something is bound to give, and the question is which way?
In a perplexing counterargument, a recent Merrill Lynch Fund Manager Survey noted that funds and fund managers are among the most underweight U.S. stocks in the past 10 years. Also, that cash positions are extended. So where does the truth really lie? Probably somewhere in the middle. It makes sense to stay in stocks, but very carefully.
We screened the Merrill Lynch research universe for stocks that are super-safe, offer dividends and are rated Buy. These five companies fit the bill perfectly.
The maker of tobacco products and wine posted very solid numbers in the first half of the year, and the third quarter is looking good as well. Altria Group Inc. (NYSE: MO) is a top mega-cap consumer discretionary stock to buy on Wall Street, and the company’s Marlboro brand remains one of the most recognizable in the world.
Many Wall Street analysts concede that the stock has solid downside support owing to the generous dividend yield, which remains at a huge premium in relation to the 10-year Treasury rate. Cash flow generation and the return of cash to Altria shareholders remain key facets of the company’s total shareholder return, and the analysts expect support of the strong dividend, which they believe will continue to climb along with strong share repurchase activity. The board also recently raised the dividend by 8.2%.
To diversify away from cigarettes and cigars, Altria has expanded its portfolio into new categories like wine, e-cigarettes and a 27% stake in brewer SABMiller, which together generated nearly 10% of its pre-excise tax revenue last quarter.
Altria investors receive a 4.21% dividend. The Merrill Lynch price target for the stock is $78, and the Wall Street consensus estimate is$71.69. The stock closed Tuesday at $62.23.
This top dividend payer is a very safe consumer staples play for investors. Colgate-Palmolive Co. (NYSE: CL) continues to deliver solid execution and is one of the best-positioned companies in its sector, given its strong brands in attractive categories, particularly oral care.
Over half of Colgate’s total revenues (52%) are derived in faster-growth emerging economies, and the company maintains leading or near-leading market shares across Brazil, Russia, India and China. While those have slowed over the last year, a pickup in growth could be coming, especially with a very weak dollar making products attractive overseas.
While the second-quarter results were somewhat disappointing, the analysts remain positive and said this after the report:
We expect growth to improve sequentially as one-offs lap and comparisons ease. Fiscal year 2017 estimates are lowered -2c to $2.90 on organic sales -1 point to +1.6%, lower gross margins and higher ad spending, offset by lower SG&A and tax. Reiterate Buy on long-term attractiveness despite near-term challenges.
Investors receive a 2.2% dividend. Merrill Lynch has an $80 price target, and the consensus target is $75.68. Shares closed Tuesday at $71.81.