As Yields Plunge to Lows, 4 Blue Chips Sport Incredible 6% Dividends

Print Email

For the first time in a very long time, the federal funds rate of 2.5% is higher than the yield on the 10-year Treasury, which is at a 20-month low of 2.25%. While that is great news for savers, who have been hammered with low CD and money market rates, it doesn’t do much for growth and income investors. There is a significant risk tolerance between the two, but the reality is that overall yields in the United States are expected to remain lower than normal for years.

For those looking for yield and total return, we here at 24/7 Wall St. decided to screen the Merrill Lynch research database looking for stocks that were rated Buy and came with a dividend yield of 6% or higher. The following four, despite having higher yields than almost all top stocks, are not outrageously risky by any means.

AT&T

This is the telecom component on the prestigious 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 telecom giant missed Wall Street estimates for quarterly revenue in April due to lower-than-expected sales in its Warner Media unit and a shortfall in income from a wireless business, where it has cut prices to draw in customers.

AT&T shareholders are paid a rich 6.39% dividend. Merrill Lynch has a $37 price target on the shares, while the Wall Street consensus target was last seen at $33.81. The stock closed trading on Wednesday at $31.91 a share.

Altria

This maker of tobacco products offers value investors a great entry point now, and it took a hit recently as cigarette sales have slowed. 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, one of the most valuable brands in the world.

Altria owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In addition, to help lagging cigarette demand, in December 2018 it acquired 35% of JUUL Labs. Altria also came in with a mixed bag of first-quarter results, and the stock has been weak recently, thus that great entry point. The Merrill Lynch analysts this about the results:

Net sales for the quarter totaled $3.9 billion, -$237 million versus our forecast and led by weaker than anticipated cigarette volumes. Altria management reaffirmed its guidance for 2019 EPS to be in a range of $4.15 to $4.27 (unchanged) despite higher fuel prices.

Altria pays its shareholders a significant 6.38% dividend. Merrill Lynch has set a $66 price target on the stock, which compares to the lower consensus estimate across Wall Street of $58.73. The shares traded most recently at $50.19 apiece.