For years we were told that interest rates were going higher and we will get back to the normal yields of the early 2000s. Then a funny thing happened on the way to those yields — we never got there. Oh sure, interest rates have increased; the federal funds rate has gone from literally zero to the current 2.5%. However, the difference between the one-month Treasury bill and the 30-year Treasury bond is just 57 basis points, or barely more than one-half of 1%.
While things have improved for savers, as CD rates for short-term guaranteed investments have gone up solidly, they are still a long way from the 7% five-year certificate of deposit that was available 20 years ago. So we decided to screen the Merrill Lynch research database for stocks that were rated Buy that had a yield over 5%.
While not suitable for ultra-conservative accounts, these stocks do make sense for those with higher risk tolerance who are looking for dependable income and the potential or some growth.
This stock has been absolutely hammered and is on the Merrill Lynch US 1 list. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE.
The company’s fourth-quarter revenue of $47.99 billion fell short of analyst estimates. AT&T also reported net additions of 134,000 phone subscribers, well below analyst estimates of 308,000. The company also lost 403,000 satellite TV subscribers and 14% of its DirecTV Now streaming subscribers in the quarter.
AT&T shareholders are paid rich 6.93% dividend. The Merrill Lynch price target for the share is $37, while the Wall Street consensus target is $35.36. The stock closed trading on Thursday at $29.45 a share.
This maker of tobacco products offers value investors a great entry point now. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.
Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008 it spun off its international cigarette business to shareholders. In December 2018, it acquired 35% of JUUL Labs. Fourth-quarter numbers were solid, and the Merrill Lynch analysts said this:
Altria reported fourth quarter 2018 earnings per share of $0.95, in line versus Merrill Lynch consensus estimates. Smoke-able net sales beat our forecast by $9 million due to stronger price/mix. Altria’s smoke-able shipments were in line. Management provided color on US industry trends, a mid-term category outlook, and insights on its recent investments. We believe that management has made proactive steps to secure long term growth with its evolving platform.
Altria investors are paid a huge 6.57% dividend. Merrill Lynch has a price target of $56, though the posted consensus price objective is $57.22 The stock closed at $48.72 on Thursday.
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