Stock Dividend Yields the Highest Versus Bonds Since 1955: 5 to Buy Now for Income

Investing

Published: July 23, 2020 7:36 am

If you are a bond and income investor now, times are grim. The benchmark 10-year U.S. Treasury bond comes with a paltry 0.60% yield. The 30-year U.S. Treasury bond checks in at an incredibly low 1.29%. While these low rates are great for those looking to get a mortgage and buy a house, or buy a new car or boat, they are the bane of fixed income investors.
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The spread between U.S. stock dividend yields and bond yields is the widest in 65 years, and this applies to government, corporate and municipal debt. In fact, the analysts at Bernstein pointed out this week that the best income portfolio very well may be a collection of high-quality stocks that pay dependable dividends, as they feel there is much better visibility on equity dividends.

We screened the 2020 Dividend Aristocrat list for stocks rated Buy in the BofA Securities research universe and found five that looked solid and safe for investors looking to generate higher income. The 2020 S&P 500 Dividend Aristocrats list includes 66 companies that have increased dividends for 25 years straight. Keep in mind, just because they are on this list now doesn’t mean in the future they won’t be forced to reduce their dividend. And it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

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.

The company said recently it would immediately abandon Venezuela’s pay-TV market as U.S. sanctions prohibit its DirecTV platform from broadcasting channels that it is required to carry by the socialist administration of Nicolas Maduro. AT&T is the largest player in Venezuela’s pay-TV market and was one of the last major American companies still operating in the crisis-wracked country.

Investors receive a healthy 6.90% dividend. BofA Securities has a $36 price target for the shares, while the Wall Street consensus target is $33.88. AT&T stock closed trading on Wednesday at $30.16.

Coca-Cola

This 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. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.

On Tuesday, Coca-Cola posted quarterly earnings that beat the Wall Street consensus estimate, even if they were lower than a year ago.

Investors receive a 3.38% dividend. The BofA Securities price target is $53, and the consensus target is $52. Coca-Cola stock closed at $48.48 on Wednesday.

Exxon

This is another safer long-term play for conservative investors. While the energy giant is trading above the March lows, it remains incredibly cheap. 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.