For years we were told that interest rates were going higher and we will get back to the normal yields of the early 2000s. Then a funny thing happened on the way to those yields — we never got there. Oh sure, interest rates have increased; the federal funds rate has gone from literally zero to the current 2.5%. However, the difference between the one-month Treasury bill and the 30-year Treasury bond is just 57 basis points, or barely more than one-half of 1%.
While things have improved for savers, as CD rates for short-term guaranteed investments have gone up solidly, they are still a long way from the 7% five-year certificate of deposit that was available 20 years ago. So we decided to screen the Merrill Lynch research database for stocks that were rated Buy that had a yield over 5%.
While not suitable for ultra-conservative accounts, these stocks do make sense for those with higher risk tolerance who are looking for dependable income and the potential or some growth.
This stock has been absolutely hammered and is on the Merrill Lynch US 1 list. 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’s fourth-quarter revenue of $47.99 billion fell short of analyst estimates. AT&T also reported net additions of 134,000 phone subscribers, well below analyst estimates of 308,000. The company also lost 403,000 satellite TV subscribers and 14% of its DirecTV Now streaming subscribers in the quarter.
AT&T shareholders are paid rich 6.93% dividend. The Merrill Lynch price target for the share is $37, while the Wall Street consensus target is $35.36. The stock closed trading on Thursday at $29.45 a share.
This maker of tobacco products offers value investors a great entry point now. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.
Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008 it spun off its international cigarette business to shareholders. In December 2018, it acquired 35% of JUUL Labs. Fourth-quarter numbers were solid, and the Merrill Lynch analysts said this:
Altria reported fourth quarter 2018 earnings per share of $0.95, in line versus Merrill Lynch consensus estimates. Smoke-able net sales beat our forecast by $9 million due to stronger price/mix. Altria’s smoke-able shipments were in line. Management provided color on US industry trends, a mid-term category outlook, and insights on its recent investments. We believe that management has made proactive steps to secure long term growth with its evolving platform.
Altria investors are paid a huge 6.57% dividend. Merrill Lynch has a price target of $56, though the posted consensus price objective is $57.22 The stock closed at $48.72 on Thursday.
Kraft Heinz Co. (NYSE: KHC) was formed almost three years ago via the merger of H.J. Heinz and Kraft Foods. The company is a leading global food company, with $29 billion of annual revenues generated by well-known brands such as Kraft, Heinz, Oscar Mayer and Maxwell House.
The company is the third largest food and beverage manufacturer in North America, and it derives 76% of revenues from that market and 24% from international markets. The company’s many brands also include ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Ore-Ida, Philadelphia, Planters, Plasmon, Quero, Weight Watchers Smart Ones and Velveeta.
Kraft Heinz shareholders are paid a huge 5.29% dividend. The $52 Merrill Lynch price target is less than the $56.33 consensus target price. The shares closed most recently at $47.23 apiece.
The volatile price of natural gas over the past year has weighed some on this top energy company. ONEOK Inc. (NYSE: OKE) primarily engages in natural gas transportation, storage and natural gas and natural gas liquids (NGLs) gathering, processing and fractionation in the Bakken, Mid-Continent and Permian. The company recently closed the roll-up of its underlying master limited partnership, ONEOK Partners.
The company has a strong presence in the Oklahoma SCOOP/STACK (NGL gathering/takeaway system, G&P), the Williston Basin (G&P, NGL takeaway) and the Permian Basin (NGL gathering, NGL takeaway, natural gas takeaway), which the RBC team feels provides high-return growth opportunities.
Many on Wall Street remain very positive on the company’s primarily fee-based earnings, which account for 90% of total earnings.
Investors in ONEOK are paid a very solid 5.28% dividend. Merrill Lynch has set its price objective at $67. The consensus target was last seen at $70.16. The shares ended Wednesday’s trading at $65.14 apiece.
Royal Dutch Shell
This is a top international play for investors looking to add energy exposure, and it is another company that posted solid results. 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 NGLs.
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, LNG 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 Merrill Lynch team remains bullish on the shares and noted this when the earnings were released:
Fourth quarter 2018 saw solid earnings (8% beat vs. consensus) and $12.2 billion organic operating cash flow ahead of our already above-consensus estimate. $27 billion organic free cash flow in fiscal year 2018 significantly de-risks the company’s outlook for $25-30 billion in 2020 – funding $25 billion buybacks. Ongoing buybacks also underline continued capex discipline.
Investors in Royal Dutch Shell are paid a huge 5.09% dividend. The Merrill Lynch price objective is $70. The posted consensus figure is $78.13, and the stock was last seen trading at $62.84.
These five top companies have paid dependable dividend and distributions for years. With the prospect of years of lower benchmark interest rates, their Buy-rated stocks make good sense for balanced accounts looking for total return potential.