Investing

Q2 Earnings Will Be Gruesome and COVID Is Back: Rotate to Defensive Dividend Stocks

After the huge melt-up rally off the March lows, the S&P 500 closed Wednesday at 3,115. That is almost 900 points higher than the 2,237 sell-off low on March 23. While the stock market is a forward-looking instrument, traders and strategists know that the coming earnings data will be horrific, the domestic and geopolitical scene is messy and every additional wild card that is out there could be played for all we know. So investors may want to brace themselves for a third-quarter that grinds lower.

While going to cash is almost never an option for investors, rotating to dividend-paying stocks that offer better upside and total return potential might be a very good idea now. We screened the BofA Securities US 1 list, which made some huge whole-scale changes this week, looking for the firm’s top picks that also pay reliable dividends.

We found five companies that are rated Buy that are the highest yielding stocks on the list. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

BlackRock

Many on Wall Street love this firm’s growth potential near term and especially long term. BlackRock Inc. (NYSE: BLK) is the largest asset manager in the world, with more than $5 trillion in assets under management. Its acquisitions of Merrill Lynch Investment Management and iShares transformed it from a fixed income manager into a multiproduct and multichannel giant, with roughly 40% of its assets under management overseas. It has leading franchises in exchange-traded funds (ETFs), institutional fixed income, alternatives and cash. It also operates Solutions, a leader in risk analytics.

The company’s strong historical and prospective dividend growth is underpinned by the high-quality and diversified business model. Dividends have increased 18% annually over the past 10 years. Dividend growth likely will moderate but remains solid in the low teens, consistent with expectations for earnings growth in the years ahead.

Shareholders receive a 2.67% dividend. The BofA Securities price objective is a stunning $600, while the Wall Street consensus price target is $570.50. BlackRock stock closed Wednesday at $544.32 a share.

Bristol-Myers Squibb

This remains a solid pharmaceutical stock to own and is on the Merrill Lynch US 1 list. Bristol-Myers Squibb Co. (NYSE: BMY) is a global pharmaceutical company focused on discovering, developing, licensing and marketing chemically synthesized drugs or small molecules and biologics in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV), oncology, neuroscience, immunoscience and cardiovascular.

Bristol-Myers reported strong first-quarter results that were largely ahead of Wall Street consensus, given the recognition of revenue from Celgene, which the company acquired last year for a massive $74 billion. The company is expected to report second-quarter results on August 6.

Bristol-Myers Squibb stockholders receive 3.03% dividend. BofA Securities has an $80 price target on the shares, while the consensus target is $71.36. Wednesday’s closing share price was $59.43.

Procter & Gamble

The company offers a very dependable dividend, which was raised to $0.79 from $0.75 this spring. Procter & Gamble Co. (NYSE: PG) is one of the world’s largest consumer products companies, and it operates in five segments: Beauty, Grooming, Health Care, Fabric & Home Care, and Baby & Family Care. Its many brands include Pampers, Tide, Bounty, Charmin, Gillette, Oral B, Crest, Olay, Pantene, Head & Shoulders, Ariel, Gain, Always, Tampax, Downy and Dawn. Some of these are among the most valuable brands in the world.