5 Merrill Lynch Conservative Income Stock Picks as Rates Drop to All-Time Lows

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Just when savers and income investors were hopeful that it might be safe to start buying certificates of deposit again, rates have plummeted to record lows once more. The combination of the worldwide coronavirus scare, ongoing trade issues, the usual geopolitical hot spots and the U.S. presidential election has investors bidding up U.S. Treasury debt with a frenzy never seen.

The 30-year U.S. Treasury bond closed Wednesday with a tiny 1.64% yield, while the benchmark 10-year Treasury bond closed Wednesday at 0.992%, the lowest on record for both. After a surprise 50-basis-point cut in the federal funds rate, the Merrill Lynch team feel the Fed could lower it another 25 basis points at the March and April meetings.

Often when rates fall, income investors look to bond proxy stocks, which are typically safer and provide dependable income. Utilities, real estate investment trusts (REITs), master limited partnership (MLPs) energy stocks and consumer staples all fall into the category. We screened the Merrill Lynch research universe and found five reasonably safe stocks for conservative income accounts, and all are rated Buy.

American Electric Power

This is one of the largest public utilities in the United States and is on the Merrill Lynch US 1 list of top stock picks. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.4 million customers in 11 states.

The company ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

The stock was considered a good one for retiring baby boomers.

Shareholders receive a solid 2.81% dividend. The analysts at Merrill Lynch have set a $111, price target, while the consensus price target across Wall Street was last seen at $105.44. American Electric Power stock closed trading on Wednesday at $99.81 a share, up over 4.5% on the day.


This company remains a top Warren Buffet holding and offers not only safety but also an incredibly strong worldwide brand with 40% overseas sales. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.

Led by Coca-Cola, one of the world’s most valuable brands, the company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.

Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. With coolers getting packed for picnics, parades and vacations you can bet that they will be stuffed with products from this iconic American company. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.

Investors receive a 2.78% dividend. The Merrill Lynch price target for the stock is $65, and the posted consensus target is $63.50. Coca-Cola stock closed at $58.92 a share, after climbing 5% on Wednesday.

Enterprise Products Partners

This company is the largest publicly traded MLP and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) provides a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, natural gas liquids fractionation, import and export terminaling, and offshore production platform services.

One reason many analysts may have a liking for the stock might be its distribution coverage ratio. The company’s distribution coverage ratio is well above one times, making it relatively less risky among the MLPs. The company’s distributions have grown consistently over the years, and earlier this year, Enterprise Products Partners announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.445 per common unit, or $1.765 per unit on an annualized basis.

This MLP offers investors a very solid 7.33% distribution. The $36 Merrill Lynch price target compares with the $34.40 consensus estimate. Enterprise Products Partners stock closed most recently at $24.07.

Public Storage

This giant self-storage leader has always been a go-to REIT stock for income investors. Public Storage Inc. (NYSE: PSA) is a fully integrated, self-administered and self-managed REIT that primarily acquires, develops, owns and operates self-storage facilities.

As of December 31, 2019, Public Storage had interests in 2,483 self-storage facilities located in 38 states with approximately 169 million net rentable square feet in the United States and 35% equity interest in Shurgard, which owned 234 storage facilities located in seven Western European nations with approximately 13 million net rentable square feet.

Investors receive a 3.54% distribution. Merrill Lynch has a $229 price target. The consensus price objective is $217.73, but note that the final Public Storage stock trade on Wednesday hit the tape at $226.08, after rising almost 4% on the day.

Simon Property

Simon Property Group Inc. (NYSE: SPG) invests in 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 REIT with over 260 shopping centers in 13 countries.

One key driver of growth will include the over $1.0 billion in development/redevelopment planned over the next few years. Most on Wall Street feel that the company’s high-quality portfolio will continue to weather the retail storms better than most.

Holders of Simon Property stock receive a 6.76% distribution. The Merrill Lynch price target is $165. The $161.31 consensus price target is well above the most recent close at $123.49.

Once again, it is very important to note that none of these top companies 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 all are suitable for the proverbial grandmothers and babies accounts, they are very good choices for investors seeking income in the bond proxy space, especially after their share prices have plummeted.

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