Investing

The 5 Highest-Yielding Dividend Aristocrat Stocks Have Solid Total Return Potential

The higher the market goes, the harder it becomes. The quest to find new or better equity investment ideas in a market where all-time highs are being pounded out routinely is becoming a challenge. It’s even more of a challenge for active portfolio managers, who continue to be hammered on performance by passive management.

We decided to have another look at one of our favorite groups of stocks, the Dividend Aristocrats. These are S&P 500 companies that have boosted their annual dividend distributions for at least the past 25 consecutive years and meet certain additional requirements regarding market capitalization, liquidity and trading volume.

Figuring that total return ultimately will be a big factor in portfolio performance this year, we screened the 64 Dividend Aristocrat stocks for the five highest yielding. These look like solid ideas for the rest of 2020 and beyond.

AT&T

This is a top telecom and entertainment play. AT&T Inc. (NYSE: T) is the largest U.S. telecom company and provides wireless and wireline service to retail, enterprise and wholesale customers. The company’s wireless network serves approximately 124 million mobile connections, with 77 million postpaid subscribers.

While AT&T’s traditional wireline voice business has undergone a period of secular decline due to wireless substitution and cable competition, the company through WarnerMedia has become a diversified media and entertainment business.

Merrill Lynch noted this when discussing the 2020 potential for the communications giant:

Our price objective is based on a P/E multiple of 12 times our fiscal year 2020 EPS estimate, which is in the middle of AT&T’s historical relative multiple range vs the S&P 500. We think this is warranted based on challenging operating trends within AT&T’s television business, higher leverage, and integration risk, but offset by higher earnings estimates and faster growth after baking in the impact of the company’s stock buyback and cost savings initiative.

Investors receive a 5.44% dividend. Merrill Lynch has a Buy rating and a $43 price objective on the stock. The Wall Street consensus target is $39.43. AT&T stock closed trading at $38.26 on Tuesday.

AbbVie

This is one of the top health care stock picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia and neuroscience.

One of the biggest concerns with AbbVie is what might happen eventually with anti-inflammatory therapy Humira, which has some of the largest sales for a drug ever recorded. The company was concerned, so last June it announced that it has agreed to pay $63 billion for rival drugmaker Allergan, the latest merger in an industry in which some of the biggest companies have been willing to pay a high price to resolve questions about their future growth.

AbbVie may be nearing the limits of how far it can boost Humira’s price as cheaper competitors come to market, a problem Allergan is already grappling with as more alternatives to Botox emerge. But with new applications being discovered for Humira, and the strength of Allergan’s portfolio, the stock is a solid play now.

Shareholders receive a 5.04% dividend. Mizhou’s Buy rating comes with a $104 price target, which is above the $100.42 consensus target. AbbVie stock closed on Tuesday at $93.61.

Exxon

This remains a top Wall Street energy pick and is a safer long-term play for conservative investors. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products. Note that Exxon has one of the highest paid American CEOs.