With 2020 rapidly and thankfully coming to a close, many investors are evaluating portfolios for 2021. After what was an incredible run off the March and then the September lows, many on Wall Street feel that the stock markets are fully valued, many trades are very crowded and small investor bullish sentiment as reflected by small lot call option trading is flashing a huge warning sign.
What many on Wall Street feel makes sense for 2021 are dividend-paying stocks with solid growth potential that can deliver solid total return. Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested.
We screened the BofA Securities US 1 list, which contains the firm’s top 37 stock picks, looking for companies that pay a higher dividend the S&P 500 index of 1.62%. Five do, and all make sense for investors looking for great stock ideas and income. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This off-the-radar choice has solid upside potential from current levels. AES Corp. (NYSE: AES) owns and operates power plants to generate and sell power to customers, such as utilities, industrial users and other intermediaries. The company also owns and operates utilities to generate or purchase, distribute, transmit and sell electricity to end-user customers in the residential, commercial, industrial and governmental sectors. It also generates and sells electricity to the wholesale market.
AES uses a range of fuels to generate electricity, including natural gas, coal, hydro, wind, energy storage, oil, diesel, petroleum coke, biomass, landfill gas and solar. The company owns and operates a generation portfolio of approximately 29,352 megawatts. It has operations in the United States, Chile, Colombia, Argentina, Brazil, Mexico, Central America, the Caribbean, Europe and Asia.
A domestic and global player, 28% of the company’s capacity is derived from South American generation, 26% from North American generation and 19% from North American utilities.
Shareholders receive a 2.83% dividend. The BofA Securities price objective for the shares is $23, and the Wall Street consensus target is $18.11. AES stock closed on Monday at $21.30 per share.
The company reported solid earnings last week and is the newest member of the US 1 list. Broadcom Inc. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.
Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.
The company posted a modest earnings beat and raise as expected, as supply remains tight but the backlog is now at a record $14 billion, which is higher than in the first half of the past fiscal year. Demand visibility going out six months of non-cancellable orders shows 50% free cash flow margins. Toss in an 11% dividend boost, which is the highest in the chip arena, and everything seems to be clicking for Broadcom.
With the increase, the dividend now sits at a solid 3.55%. BofA Securities has a huge $500 price objective, while the posted consensus price target is $417.43. Broadcom stock closed at $411.80 on Monday.
This remains a solid pharmaceutical stock to own long-term and offers among the best values now for investors. 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.
The company’s products include the following:
- Opdivo for anti-cancer indications
- Eliquis, an oral inhibitor targeted at stroke prevention in adult patients with non-valvular atrial fibrillation, and the prevention and treatment of venous thromboembolic disorders
- Orencia for adult patients with active RA and prostate-specific antigen, as well as reducing signs and symptoms in pediatric patients with active polyarticular juvenile idiopathic arthritis.
Shareholders receive a 3.27% dividend. The $80 BofA Securities price target is above the $74.29 consensus target. Bristol-Myers stock closed at $59.97.
This financial services giant is a premier stock for those looking to add financials. Goldman Sachs Group Inc. (NYSE: GS) has a gigantic institutional equity, debt and derivatives business, an ultra-high net worth clientele, top investment banking and capital markets expertise, and the firm continues to be a dominant force around the world in the world of finance.
Its Investment Banking segment provides financial advisory services, including strategic advisory assignments related to mergers and acquisitions, divestitures, corporate defense activities, restructurings and spin-offs; middle-market lending, relationship lending and acquisition financing; as well as transaction banking services.
This segment also offers underwriting services, such as equity underwriting for common and preferred stock and convertible and exchangeable securities, and debt underwriting for various types of debt instruments, including investment-grade and high-yield debt, bank and bridge loans and emerging- and growth-market debt.
Goldman Sachs Global Markets segment is involved in client execution activities for cash and derivative instruments; credit products; mortgages; currencies; commodities; and equities; and provision of equity intermediation and equity financing services. It also offers clearing, settlement and custody services.
Holders of Goldman Sachs stock receive a 2.10% dividend. BofA Securities has set a $270 price target. The consensus target is $250.11, and the shares were last seen trading at $237.79.
This medical technology giant is a solid pick for investors looking for a safe position in the health care sector, and it was also a fairly recent addition to the US 1 list. Medtronic PLC (NYSE: MDT) develops, manufactures, distributes and sells device-based medical therapies to hospitals, physicians, clinicians and patients worldwide. It operates in four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group and Diabetes Group.
The company announced earlier this summer that Blackstone’s life sciences division would invest $337 million into the research and development of its diabetes device technologies. Under the terms of the agreement, Medtronic will receive funding for four diabetes programs over the next several years. Medtronic’s engineering, clinical and regulatory teams will conduct the development work for the programs.
Investors receive a 2.07% dividend. The BofA Securities price target is $130. The consensus price target is $117.17, and Medtronic stock ended Monday at $111.97.
While none of the dividends are gigantic, compared with a puny 30-year Treasury bond of 1.63%, which has zero growth potential, they are all very attractive. In addition, all these companies have very strong and defensible business models and products, which should continue to excel over the years.
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