While Monday saw a massive snapback rally in the equity markets, one area where the rally never seems to stop is the U.S. Treasury market. The yield on the 10-year Treasury bond dropped to a historic low of 1.08%, which means buyers seeking a safe haven continue to pile into the bonds.
The coronavirus concerns are one main reason for the recent massive drop in yields. Yet, the prospects of a Federal Reserve rate cut later this month, as well as long-term factors like slowing economic growth, tepid inflation expectations and not enough safe assets to go around, have all contributed to the yield decline this year.
Yields will rise at some point, but the reality is that low single-digit yields look to be around for a long time, and while negative-yielding foreign sovereign debt has declined, there is still a very large amount out there.
We screened our 24/7 Wall St. research database and found four companies that are leaders in their respective industries and yield at least 6%. They are rated Buy at major Wall Street firms as well.
Altria
This maker of tobacco products is offering value investors a great entry point after the huge market sell-off. 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 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, the company acquired 35% of Juul Labs, and while there have been some negative headlines on vaping recently, the trend is probably here to stay. Altria also has purchased a 45% stake in cannabis company Cronus for $1.8 billion.
The negative press on vaping has been a big headwind, and the crash in marijuana stock prices have weighed on this worldwide leader. In addition, the legal age to buy tobacco products recently was raised to 21. Despite all the headwinds, investors are still able to buy the stock at a very reasonable price.
Investors will pocket a massive 8% dividend. Merrill Lynch has a $58 price objective on the shares, while the Wall Street consensus target is $54.89. Altria stock was last seen Monday trading at $42.07 per share.
Occidental Petroleum
This energy company may be offering investors the best total return potential. Occidental Petroleum Corp. (NYSE: OXY) is an oil-levered multinational organization with principal business segments in oil and gas and in chemicals.
The oil and gas segment explores for, develops, produces and markets crude oil and natural gas, primarily in the U.S. Permian Basin, Colombia, Bolivia, Libya, Oman, Qatar and Yemen. Meanwhile, the chemicals segment manufactures and markets basic chemicals, vinyls and performance chemicals.
The shares have underperformed since the Anadarko acquisition was announced, but the investment case anchored by yield has not changed. The analysts note that the company has 50% of 2020 production hedged, and they pointed to the integration of Anadarko, where planned synergies, noncore asset sales and conglomerate cash flows provide downside protection through current commodity weakness.
Shareholders receive a massive 9.59% dividend. The Merrill Lynch price target is a huge $75, well above the posted consensus target of $50.05. Occidental Petroleum stock closed on Monday at $32.95.
Royal Dutch Shell
This is another top international energy play that has been eviscerated in the energy sector sell-off. 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 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.
The company posted disappointing fourth-quarter results, and Merrill Lynch felt that while the share buyback program could slow and dividend growth also may slow, the firm was very positive with the expectation for flat capital expenditures for 2020.
Investors receive a 7.14% dividend. The $68 Merrill Lynch price objective is less than the $73.29 consensus figure. Royal Dutch Shell stock closed at $44.84 on Monday.
24/7 Wall St.Ventas
This is a top health care real estate investment trust, and it may be one of the safest plays for more conservative accounts. Ventas Inc. (NYSE: VTR) is a fully integrated and self-administered equity REIT that acquires, invests and manages a portfolio of health care real estate across the United States, Canada and the United Kingdom.
The company’s diverse portfolio of approximately 1,200 assets consists of senior housing communities, medical office buildings, university-based research and innovation centers, inpatient rehabilitation and long-term acute care facilities, and health systems. Through its Lillibridge subsidiary, Ventas provides management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States.
Jefferies analysts recently upgraded the shares to Buy and noted this at the time:
Ventas has been dealing with a supply glut in its markets but the data shows a pronounced decline in construction in the company’s markets since first quarter 2019 suggesting a turnaround in results ahead. We conducted various demographic analyses on the portfolios of the Healthcare REITs (population, income, etc.) and the results suggest only modest differences in the portfolio quality among the “Big Three” and implies the 4 times valuation discount that Ventas trades to competitors is unwarranted.
Shareholders receive a 6.05% distribution. Jefferies has set a price target of $68. The consensus target is $60.89, and Ventas stock closed most recently at $52.36.
It is very important to note that none of these top stocks offers the safety and security of a short-term investment grade bond or a bank certificate of deposit. With that on the table, they have all paid consistent and rising dividends for years, and while not perhaps suitable for the proverbial grandmothers and babies accounts, they are good choices for investors with a higher risk tolerance who are seeking income, especially after their share prices have plummeted.
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