For the past two weeks, the sellers have been holding serve and investors are growing increasingly more worried about a big sell-off ahead. Given the massive move since the market lows of March 2020, and the fact that we haven’t had a 5% decline in almost a year, many investors sense that it is time to move to safer stocks that still have growth potential going forward but also pay solid dividends that are dependable. Despite some hand wringing over higher interest rates, those rates remain near generational lows across the board, and it is unlikely the Federal Reserve starts to increase rates for another year or more.
We decided to screen the Goldman Sachs Americas Conviction List, which is a collection of the top equity ideas at the firm, looking for stocks that paid a solid and dependable dividend that was higher than the S&P 500 yield of 1.31% and the 30-year U.S. Treasury bond of 1.91%.
We found five that look like outstanding total return ideas now, and all are positioned well for the rest of 2021 and beyond. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Bank of America
The company posted solid second-quarter results and looks poised to do the same for the third quarter. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
The bank has expanded into a number of new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.
Bank of America stock investors receive a 2.07% dividend. Goldman Sachs has a $44 price target on the shares, which is in line with the $44.01 consensus target. Friday’s closing share price was $40.50.
DTE Energy
With the potential for a very cold winter, this company may look to extend gains into 2022. DTE Energy Co. (NYSE: DTE) is the largest utility in Michigan. Its largest operating units are DTE Electric, an electric utility serving 2.2 million customers in southeastern Michigan, and DTE Gas, a natural gas utility serving 1.3 million customers in the state. DTE Energy also has non-utility energy businesses that focus on power and industrial projects, natural gas midstream and energy trading.
The company’s Gas segment purchases, stores, transports, distributes and sells natural gas to residential, commercial and industrial customers throughout Michigan, and it sells storage and transportation capacity. This segment has approximately 19,800 miles of distribution mains, 1,305,000 service pipelines and 1,273,000 active meters, as well as approximately 2,000 miles of transmission pipelines.
Its Gas Storage and Pipelines segment owns natural gas storage fields, lateral and gathering pipeline systems and compression and surface facilities. It also has ownership interests in interstate pipelines serving the Midwest, Ontario and northeast markets.
The company’s Power and Industrial Projects segment offers metallurgical coke; pulverized coal and petroleum coke to the steel, pulp and paper, and other industries; and power, steam and chilled water production, and wastewater treatment services, as well as supplies compressed air to industrial customers.
Shareholders receive a 2.89% dividend. The Goldman Sachs price target is $137, well above the $127.70 consensus target for DTE Energy stock. Friday’s close was at $114.00 per share.
Marathon Petroleum
This is a solid way for investors who are more conservative to play the energy sector. Marathon Petroleum Corp. (NYSE: MPC) is one of the largest independent petroleum refining and marketing companies in the United States.
Until just recently, the company operated approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, it operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.
Last year, the company announced it would sell Speedway to 7-11 in an all-cash deal valued at $21 billion, or $16.5 billion after-tax. The sale transforms the company’s balance sheet and creates options to revisit the corporate structure of MPLX. Many on Wall Street feel that with Speedway removed, the dislocation in refining value becomes even more transparent as the company trades much cheaper than its industry peers do. The deal now is expected to close before the end of the year.
Shareholders receive a 3.95% dividend. The $69 Goldman Sachs price target compares with the consensus target of $70.07. Marathon Petroleum stock closed at $58.86 on Friday.
PepsiCo
This top consumer staples pick will be supplying the goods for tailgating and football watch parties around the country all season long. PepsiCo Inc. (NYSE: PEP) operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay’s and Ruffles potato chips; Doritos, Tostitos and Santitas tortilla chips; and Cheetos cheese-flavored snacks, branded dips and Fritos corn chips.
The Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, natural granola and oat squares, as well as the recently name-changed Aunt Jemima mixes and syrups, and Quaker Chewy granola bars, Cap’n Crunch cereal, Life cereal and Rice-A-Roni side dishes.
PepsiCo’s North America Beverages segment offers beverage concentrates, fountain syrups and finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Tropicana Pure Premium, Sierra Mist and Mug brands, as well as ready-to-drink tea and coffee, and juices.
Shareholders receive a 2.80% dividend. Goldman Sachs has set a $170 price target. The consensus target is $165.55, and PepsiCo stock ended last week at $154.13 a share.
Realty Income
This is an ideal stock for growth and income investors looking for a safer idea for the rest of 2021. Realty Income Corp. (NYSE: O) is an S&P 500 company dedicated to providing stockholders with dependable monthly income.
The company is structured as a real estate investment trust (REIT), and its monthly distributions are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with commercial tenants.
To date, the company has declared 604 consecutive common stock monthly dividends throughout its 51-year operating history and increased the dividend 108 times since its public listing in 1994.
Investors receive a 4.18% distribution. The Goldman Sachs analysts have an $84 price objective. That compares with the $78 consensus target price and the $67.68 a share close on Friday.
The bottom line is that the stock market is still overbought, expensive and long due for a breather, and that probably means more than a one-day or two-day 3% decline. There are very few alternatives for investors who need some growth, and most importantly, consistent income. These five stocks all supply both and make sense for growth and income investors.
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