It became pretty clear last week that interest rates are going nowhere this year, and they may not go anywhere in 2020. The Federal Reserve is worried about slowing growth, and with inflation seemingly contained, the all-new dovish Fed Chair Jay Powell has slowed not only rate hikes but the balance sheet clean-up as well. Worried investors piled into Treasury bonds last week, driving some yields down to 52-week lows.
So what should investors do now? Look for safe stocks that pay large and dependable dividends, and that is exactly what makes up the Merrill Lynch Income Portfolio. Every sector is represented, and it is a good blueprint for total return accounts.
24/7 Wall St. screened the portfolio looking for the highest yielding Buy rated companies and found five from different sectors that are solid plays now. We listed them by the highest yield.
This stock has been absolutely hammered and is back 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.
This telecom giant also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions. Trading at a very cheap 9.4 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 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 a rich 6.57% dividend. Merrill Lynch has a $37 price target on the shares, while the Wall Street consensus target was last seen at $35.36. The stock closed trading on Friday at $31.07 a share.
Royal Dutch Shell
This is a top international play for investors looking to add energy exposure, and it posted solid fourth-quarter 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 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 (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.
Merrill Lynch remains bullish on the shares and noted this when 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 are paid a huge 5.01% dividend. The Merrill Lynch price objective is $70, but the posted consensus figure is $78.92. The shares closed at $62.88 on Friday.
Simon Property Group Inc. (NYSE: SPG) invests in the real estate markets across the globe. It engages in investment, ownership, management and development of properties. The company primarily invests in regional malls, premium outlets, mills and community/lifestyle centers to create its portfolio.
Through its subsidiary partnership, it owns or has an interest in about 230 properties in the United States and Asia. The company also has a 28.9% interest in Klepierre, a European real estate investment trust (REIT) with over 260 shopping centers in 13 countries.
One key driver of growth will include the more than $1.0 billion of development/redevelopment planned over the next few years. Merrill Lynch also feels that the company’s high-quality portfolio has weathered the retail storm much better than most.
Shareholders are paid a 4.60% distribution. The $215 Merrill Lynch price target is well above the $189.47 consensus target. The shares ended last week at $177.60 apiece.
Royal Bank of Canada
The financials have had a rough go of it, but this play is a solid way to be involved. Royal Bank of Canada (NYSE: RY) is the largest Canadian bank by market capitalization. It has 1,200 branches across Canada and is first or second across virtually all product lines in term of market share on the retail front.
Management has built out a sizable global wholesale operation and, as a result, is deriving a larger proportion of its earnings from wholesale businesses than has been typical. Royal Bank of Canada has been fairly inactive on the acquisition front over the past several years.
Investors are paid a 4.03% dividend. The Merrill Lynch price target was unavailable. The consensus target is $88.84, and shares closed way below that level on Friday at $76.03.
This top pharmaceutical stock made a gigantic splash last year with a $5.5 billion purchase of Anacor Pharmaceuticals. Pfizer Inc. (NYSE: PFE) is a global biopharmaceutical company with a diversified portfolio of products and pipeline candidates, and it is one of the largest pharmaceutical companies in the world as measured by market capitalization and revenue. It also is a component of the Dow Jones industrial average.
The company’s commercial operations are bifurcated into two business segments: Innovative Health, which focuses on the development and commercialization of medicines and vaccines, as well as consumer health care products, in various therapeutic areas, and Essential Health, which offers branded generic products, biosimilars, anti-infectives and other products without marketing patent protection.
Investors in Pfizer receive a very solid 3.43% dividend. Merrill Lynch has set its price objective at $45. The consensus price objective is $44.14, and the shares closed most recently at $41.85.
These five top stocks, all rated Buy at Merrill Lynch, come with outstanding dividends and have good growth prospects. With the market very pricey, and volatile, they make sense for investors looking to shift to lower beta profile stocks