5 Merrill Lynch High-Quality and Dividend Yield Stocks to Buy for 2020

December 4, 2019 by 247lee

With the fourth quarter of 2019 and the decade almost over, many of the top companies we follow on Wall Street are making some changes to their curated lists of stock picks for clients. With the market showing increasing volatility, much of it trade related, it makes sense for investors to examine the lists and make some changes, as the rest of the year could have additional volatility and the political and geopolitical cycle in 2020 could prove to be very explosive.

We regularly watch the Merrill Lynch High Quality & Dividend Yield List of top dividend stock recommendations for changes, and while no new companies were added this week, they did remove Automatic Data Processing Inc. (NYSE: ADP) and Norfolk Southern Corp. (NYSE: NSC).

The list tends to lean toward the more conservative side, and with good reason. Many investors, both large and small, have been selling market strength after the best year for the major indexes since 2013, so it makes sense to look for low volatility and stocks that pay reliable dividends.

We found five companies on the High Quality & Dividend Yield list that offer a higher degree of safety and reliable dividends. All are rated Buy at Merrill Lynch.

Emerson Electric

This has rallied nicely off the lows posted in August, but it still offers a solid entry point for investors. Emerson Electric Co. (NYSE: EMR) is a global technology and engineering company providing innovative solutions for customers in industrial, commercial and residential markets.

The company’s Automation Solutions business helps process, hybrid and discrete manufacturers maximize production, protect personnel and the environment while optimizing their energy and operating costs. The Commercial & Residential Solutions business helps ensure human comfort and health, protect food quality and safety, advance energy efficiency and create a sustainable infrastructure.

Emerson Electric shareholders receive a very reasonable 2.75% dividend. The Merrill Lynch analysts have set an $80 price target, which compares with the lower consensus figure of $75.67. The stock was last seen trading on Tuesday at $72.61 a share.

General Dynamics

This company, like other major defense prime contractors, has had a very solid year. General Dynamics Corp. (NYSE: GD) is engaged in business aviation, land and expeditionary combat vehicles and systems, armaments, munitions, shipbuilding and marine systems, and information systems and technologies.

Major products include Virginia-class nuclear-powered submarine and Ohio class replacement, Arleigh Burke-class Aegis, Abrams M1A2 tank, Stryker eight-wheeled assault vehicle, medium-caliber munitions and gun systems, tactical and strategic mission systems.

General Dynamics offers investors a 2.30% dividend. Merrill Lynch has a $218 price target on the shares, while the posted consensus estimate is $205.83. The stock closed most recently at $177.04 per share.

Honeywell International

This top industrial could be poised for an incredible 2020 if global growth picks up. Honeywell International Inc. (NYSE: HON) is a diversified, global technology and manufacturing company. Its operations are organized under four business groups: Aerospace, Home & Building Technologies, Safety & Productivity Solutions, and Performance Materials & Technologies.

The company is also a premier supplier of avionics, power and control systems for the aerospace industry. The analysts recently attended the company’s Honeywell Building Technologies Investor Showcase at the segment’s Atlanta headquarters, and they noted this in a recent report:

HBT has improved its revenue and margin trajectory following the October 2018 spin-out of its residential business. This is being driven by management & cultural change (four of five segment leaders have been with the company for almost 2 years; President Vimal Kapur is new to HBT, coming from Honeywell’s Process Solutions segment last year). New leaders started reinvigorating products (rising vitality indexes across sub-segments).

Investors in Honeywell are paid a 2.09% dividend. The $203 Merrill Lynch price objective is well above the $185.55 consensus across Wall Street. The stock traded at $172.55 a share on Tuesday’s close.

Texas Instruments

This old-school chip tech company offers solid value at current levels and is a great pick for more conservative investors. Texas Instruments Inc. (NASDAQ: TXN) is a broad-based supplier of semiconductor components, ranging from digital signal processors to high-performance analog components, to digital light-processing technology and calculators.

Some 65% of the company’s sales are exposed to the well-diversified, business-to-business industrial, automotive, communications infrastructure and enterprise markets. While the stock was hit hard recently as it is a big Apple supplier, the long-term outlook for this venerable leader makes it a safer bet for accounts with less risk tolerance.

The stock was crushed after posting solid third-quarter results, but guidance surprised Wall Street. The backup in the share price still offers long-term investors the best entry point since the summer.

Investors receive a 3.10% dividend. The Merrill Lynch price target for the shares is $140. The consensus target price is $126.07, and the stock last closed at $117.75.

VFC

This top consumer apparel stock could be poised for a big holiday shopping season. V.F. Corp. (NYSE: VFC) is a leading apparel wholesaler of lifestyle brands, including North Face, Vans, Wrangler, Lee, Timberland and Nautica. VFC distributes products globally via department stores, independent retailers, specialty chains and its own retail (full price, outlet and e-commerce).

Coalition segments include Outdoor and Action Sports (68% of fiscal 2018 revenue), Jeanswear (21% of revenue), and Workwear/Imagewear (9% of revenue). The company reported solid results this year and recently spun off its Kontoor Brands to pay down debt.

Shareholders receive a 2.23% dividend. Merrill Lynch has a price objective of $100, while the consensus is nearly in line at $101.43. The shares closed most recently at $85.99.

With outstanding metrics and good dividends, these quality companies make good sense for conservative growth portfolios. With solid total return potential and less probability for extreme volatility, they all are outstanding long-term portfolio additions.