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.
AT&T
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.
Altria
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.
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