Volatility Here to Stay: 5 Blue Chips to Buy That Yield 4% or More

February 21, 2018 by Lee Jackson

After literally years of no volatility, that sleeping giant has emerged, and while it may not spell the end of the stock market rally, it certainly could put us back into what are more normal market metrics. Typically the stock market will have as many as three 5% declines a year. The recent declines that started in early February were the biggest in over two years, and one thing’s for sure: You can bet that the rest of the year will trend back toward more normal market volatility.

With the recent increase in volatility on our minds here at 24/7 Wall St., we searched the Merrill Lynch research universe for large-cap blue-chip stocks that were rated Buy and that paid at least a 4% dividend. We found five that look like good places to move capital to now.

Altria

The maker of tobacco products and wine has posted very solid numbers and remains a solid play for income investors. 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 more than 8%.

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 are paid a hefty 4.11% dividend. Merrill Lynch has an $82 price target on the stock, and the Wall Street consensus estimate is $77.23. The stock closed most recently at $64.19 per share.

Dominion Resources

Many of the Wall Street firms that we cover are very positive on this top utility. Dominion Resources Inc. (NYSE: D) is one of the nation’s largest producers and transporters of energy, with a portfolio of approximately 24,600 megawatts of generation and 6,455 miles of electric transmission lines. Dominion operates one of the nation’s largest natural gas storage systems, with 928 billion cubic feet of storage capacity, and serves utility and retail energy customers in 13 states.

Dominion operates via three divisions. Dominion Virginia Power is focused on regulated electric transmission and distribution that serve residential, commercial, industrial and governmental customers in Virginia and North Carolina. Dominion Generation generates electricity through coal, nuclear, gas, oil, hydro and renewable sources. Dominion Energy centers on regulated natural gas distribution and storage.

Dominion Resources investors are paid a solid 4.47% dividend. The Merrill Lynch price target for the shares is $79, and the posted consensus target is $80.86. The shares closed Tuesday’s trading at $74.75 apiece.

Exxon Mobil

This company remains a top Wall Street energy pick and is still down about 10% in 2018. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

For 75 years in a row, Exxon has raised its dividend on a split-adjusted basis. Thanks to the company’s vertically integrated model in the oil and gas business, its profitability doesn’t suffer through commodity price swings like a company that’s a pure play in one segment of the value chain.

Shareholders in Exxon are paid a nifty 4.07% dividend. Merrill Lynch has set its price objective at $102, while the posted consensus figure is much lower at $87.24. The stock closed Tuesday at $75.75 per share.

National Retail Properties

This is not only one of the largest real estate investment trusts, but it is also a solid choice for nervous investors. National Retail Properties Inc. (NYSE: NNN) is a fully integrated REIT that acquires, owns and invests in single-tenant net-lease retail properties. As of September 30, 2017, the company owned 2,687 properties in 48 states, with a gross leasable area of approximately 28.2 million square feet and a weighted average remaining lease term of 11.4 years.

The Merrill Lynch team likes the strong balance sheet at National Retail Properties, which has no debt coming due until 2012, and the experienced management team. While the company left 2018 guidance unchanged, it probably is unlikely that any upside surprise will emerge.

National Retail Properties investors are paid a very attractive 5.07% distribution. The $43 Merrill Lynch price objective compares with the consensus target price of $43.81 and the most recent closing share price of $37.48.

Verizon Communications

This is a top telecommunications company that is a solid play for more conservative growth accounts. Verizon Communications Inc. (NYSE: VZ) is a global leader in delivering the digital world. Verizon Wireless operates America’s self-described most reliable wireless network, with 109.5 million retail connections nationwide.

Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.

Verizon posted solid fourth-quarter results, and it remains a safe and solid growth and income play. The Merrill Lynch analysts said this when the company released results:

Verizon reported a solid top line beat due to the strength of the wireless business. The company missed on 4Q EBITDA/EPS due to higher expenses in the Oath business related to fourth quarter seasonal effects. We reiterate our Buy and raise the price target.

Verizon investors are paid an outstanding 4.82% dividend. The Merrill Lynch price target was last seen at $58. The posted consensus target is $55.88, and the stock closed Tuesday at $48.92 a share.

These five companies could be great total return stories in 2018 that also offer investors a degree of safety in what has become a very volatile stock market. All make sense for more conservative growth and income accounts, and all make great buys as they have been put on sale by nervous investors who sold recently.

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