5 Blue-Chip Dividend Stock Buys for Q2

March 14, 2018 by 247lee

Despite all the concern over the potential for rising interest rates and an increase in inflation, Treasury yields, which had moved dramatically higher over the past month, have tapered off some. One thing is for sure: the volatility that came back into the market with a lightning 10% sell-off in early February looks here to stay, so moving to a more defensive growth posture may be a solid idea.

One way to add total return is to buy growth stocks that pay solid dependable dividends. We screened the Merrill Lynch research universe and found five companies rated Buy that all pay at least a 4% dividend, that look like outstanding portfolio picks for the second quarter.

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 raised the dividend by 8.2% in 2017.

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 a large amount of its pre-excise tax revenue last quarter.

Altria investors are paid a hefty 4.25% dividend. The Merrill Lynch price target for the shares is $82, and the Wall Street consensus estimate is $77.46. Shares traded early Wednesday at $65.75.

Carlyle Group

This limited partnership is a solid holding for investors looking for private equity exposure. Carlyle Group L.P. (NYSE: CG) is a leading global alternative asset manager, providing investment management services across four operating segments, including Corporate Private Equity, Global Market Strategies, Real Assets and Fund of Funds Solutions. Carlyle has offices worldwide and is headquartered in Washington, D.C.

The company recently reported very strong quarterly earnings, and analysts at Merrill Lynch noted the strong performance fees and income from investments as a leading factor.

Carlyle Group investors are paid an outstanding 6.12% distribution. Merrill Lynch has a $32 price target on the stock, which compares with the consensus target of $28.88. The shares traded Wednesday morning at $22.95.

Entergy

This higher yielding utility makes the buy list at Merrill Lynch. Entergy Corp. (NYSE: ETR) is an integrated energy company engaged primarily in electric power production and retail distribution operations. It owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, including nearly 10,000 megawatts of nuclear power, making it one of the nation’s leading nuclear generators. The company delivers electricity to 2.8 million utility customers in Arkansas, Louisiana, Mississippi and Texas. Entergy has annual revenues of more than $12 billion and approximately 13,000 employees.

Many analysts like the position of the company’s plants, as they supply some of the petrochemical industry along the Gulf Coast. Petrochemical plants and liquefied natural gas export facilities are springing up all across the central Gulf Coast. For the petrochemical industry, the boom is driven by demand, not supply, and so the current lower gas prices actually help this growth trend, which has been a solid revenue silo for Entergy.

Entergy investors are paid an outstanding 4.6% dividend. Note that the $82 Merrill Lynch price target is less than the posted consensus target of $83.39. The stock traded early Wednesday at $77.20.

Exxon Mobil

This company remains a top Wall Street energy pick and is down over 15% in the past month, and it remains the preferred pick at Merrill Lynch. 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.

Exxon shareholders are paid a nifty 4.13% dividend. Merrill Lynch has set its price objective at $102. The consensus target price is much lower at $87.19. The stock traded at $74.6o Wednesday morning.

Verizon Communications

This top telecommunications company is offering investors an outstanding entry point. 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 they 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 is $58. The consensus target was last seen at $55.88, and the stock traded early Wednesday at $48.70.

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These five stocks could be great total return stories in the second quarter and for the rest of 2018, and they 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.