By any measure the stock market is overbought. On both trailing and forward earnings it is expensive, and while just a few stocks have made up most of the gains in the indexes, and value has been shunned, a correction is probably long overdue. With yields still at historic lows despite the increases in the federal funds rate, and the promise of more to come, safe dividend stocks may be a place to hide out in now.
Two of the sectors that acted well during Wednesday’s steep sell-off were telecommunications and the utilities. In fact, both of those sectors were actually up as they are considered safe havens for investors.
We screened the Merrill Lynch research database for stocks in those two sectors that were rated Buy and paid solid dividends. We found five that look like outstanding picks for conservative accounts looking for income.
This stock has been absolutely hammered and may be a great total return play. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE.
The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions. Trading at a very cheap 8.9 times estimated 2019 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.
The telecom giant reported mixed second-quarter results. However taking into account new assets from the Time Warner acquisition, AT&T raised its full-year earnings guidance to the high end of the $3.50 range, versus the $3.40 analysts had estimated.
AT&T shareholders are paid rich 6.16% dividend. Merrill Lynch has a $37 price target on the shares. That compares with a Wall Street consensus target of $35.91. The shares closed trading Wednesday at $32.47.
American Electric Power
This industry leader is also a solid dividend-paying company that only 10.2% of funds own. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states.
The company ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
Many on Wall Street feel that the stock trades at a discount to its utility peers, and they feel it deserves a premium. Top analysts also think the company may sell generating assets and buy back shares with the proceeds, which would be also accretive.
American Electric Power shareholders are paid a solid 3.46% dividend. Merrill Lynch has a price target of $75, while the posted consensus target is $74.68. Shares closed on Wednesday at $71.77.