With volatility returning to the market, and investors absolutely crushing momentum stocks that disappoint, it appears that we have reached a crossroad in the long-running bull market. The days of the FANG stocks all going up every year and taking the market along for the ride may be over.
What may be the best course of action is to find growth stocks that pay solid dividends, and keep increasing those dividends.
The Merrill Lynch Equity Income portfolio is designed for investors who are looking to stay in the market but would like to avoid momentum stock volatility. Here’s how the firm describes the portfolio.
The Research Income Portfolio is designed for moderate investors who want to obtain an ongoing secure income stream from what we view as dependable sources, with some emphasis on protection of principal. The Income portfolio is unique in its 3.52% dividend yield with diversified holdings across all Global Industry Classification Standard or GICS sectors and an estimated 8.5% in dividend growth.
We picked out the five top holdings in the portfolio. Of course, all are rated Buy at Merrill Lynch.
Royal Dutch Shell
This company has survived the seesaw in oil pricing as good as or better than any other major integrated. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and natural gas liquids.
Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.
In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.
The company just announced the start of a $25 billion stock buyback program, and while second-quarter earnings were somewhat weak, free cash flow at the integrated giant remains strong.
Royal Dutch Shell investors are paid a huge 4.67% dividend. The Merrill Lynch price objective for the stock is $78, and that compares with the Wall Street consensus figure of $78.51. The shares ended Tuesday’s trading at $68.37.
This is a top aerospace and defense stock to buy, and many on Wall Street are expecting a very solid continuation of U.S. and foreign defense spending. Lockheed Martin Corp. (NYSE: LMT) researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems, products and services. It also provides a wide range of defense electronics products and IT services.
Being the Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady inflow of follow-on orders, not only from the U.S. government but also from many foreign allies of the nation.
The company reported strong second-quarter earnings, with revenues up almost 7% year over year.
Investors in Lockheed Martin are paid a 2.45% dividend. Merrill Lynch has a $412 price objective for the shares, and the posted consensus target price is $375.76. The stock closed Tuesday at $326.10 a share.