These dividend stocks are safe havens for income investors.
The stock market in 2020 has been on a roller-coaster ride. In addition to unpredictable swings in stock prices, emergency Federal Reserve interest rate cuts have sent bond yields plummeting, leaving income investors with few viable options. Many companies have also cut or suspended their dividends to shore up their balance sheets during the economic downturn. For investors looking to play defense in the uncertain environment, reliable high-yield dividend stocks have become difficult to find. Here are seven Bank of America-recommended stocks with at least 4% yields and at least A-quality ratings from S&P Global.
PNC Financial Services Group (ticker: PNC)
PNC Financial Services is the seventh-largest U.S. bank based on deposits. Analyst Erika Najarian says PNC is well-positioned for both defense and offense, given a $5.9 billion allowance for loan and lease losses on its balance sheet. Low interest rates pressure banks’ net interest margins, but Najarian says PNC’s earnings are safe. PNC also pays a 4.1% dividend — which is more than double the average yield of the S&P 500. Bank of America has a “buy” rating and $122 price target for PNC stock.
Royal Bank of Canada (RY)
Royal Bank of Canada is the largest Canadian bank by market capitalization. In the most recent quarter, the bank’s credit losses declined 76% quarter over quarter. Analyst Ebrahim Poonawala says Royal Bank isn’t out of the woods just yet, but its 15.7% return on equity and its 12% common equity Tier 1 capital ratio suggest that the bank is healthier than many of its peers. Poonawala is optimistic that Royal Bank can gain market share during the economic downturn. The stock pays a 4.5% dividend. Bank of America has a “buy” rating and $87 price target for RY stock.
Telus Corp. (TU)
Telus is one of Canada’s largest telecommunication companies. Excluding one-time costs, earnings before interest, taxes, depreciation and amortization were up 5% in the second quarter, according to the company. Analyst David Barden is bullish on Telus because of its continued subscriber growth, its diversified service offerings, its ability to bundle services, its leading customer service, and its superior wireless and wireline networks. He projects that 5G network coverage will reach 30% of Canada’s population by the end of the year. Telus shares pay a 4.8% dividend. Bank of America has a “buy” rating and $21.50 price target for TU stock.
BCE is Canada’s largest telecommunication company and Telus’ biggest competitor. Barden says the second quarter was the “low watermark” of the current downturn, and the company’s headwinds should die down in the second half of the year. Despite the difficult environment, BCE reported 35,000 net new prepaid and postpaid subscribers in the second quarter, and Barden says fee revenue should help offset lost roaming revenue. BCE shares pay a 5.9% dividend, and Barden says the company’s cash flow should support 5% annual dividend growth. Bank of America has a “buy” rating and $54 price target for BCE stock.
Enterprise Products Partners (EPD)
Enterprise Products Partners is one of the largest public master limited partnerships and provides a number of midstream energy services, including gathering, processing, and storing natural gas and natural gas liquids. The energy sector has taken a major hit in 2020 because of travel restrictions, but analyst Ujjwal Pradhan says Enterprise’s second-quarter earnings beat is a clear demonstration of the company’s best-in-class operations. Recent refining industry data suggests that run rates have recovered to about 80% of pre-crisis levels. Enterprise shares also have a 10.8% yield. Bank of America has a “buy” rating and $24 price target for EPD stock.
Fifth Third Bancorp (FITB)
Fifth Third Bancorp is one of the largest U.S. regional banks. Najarian says Fifth Third will likely carry a high cash balance through the end of 2020, which will pressure margins. However, management has indicated that net interest margin should return to 3% if cash levels normalize following the economic downturn. In the meantime, Najarian says investors shouldn’t sweat downward revisions to earnings guidance, given that the company has simply been reducing risk by building cash reserves. Finally, Fifth Third shares pay an attractive 5% dividend. Bank of America has a “buy” rating and $26 price target for FITB stock.
International Business Machines Corp. (IBM)
IBM is one of the few large-cap tech stocks that has missed out on the tech stock rally. In fact, IBM shares are down about 14% overall in the last five years. However, analyst Wamsi Mohan says the company’s second-quarter numbers were solid, and its pivot to hybrid cloud, data services and artificial intelligence has the company on the right track in the long term. In the meantime, Mohan says the stock has an attractive valuation and a sizable 5.2% dividend. Bank of America has a “buy” rating and $145 price target for IBM stock.
‘A-rated’ dividend stocks to buy:
— PNC Financial Services Group (PNC)
— Royal Bank of Canada (RY)
— Telus Corp. (TU)
— BCE (BCE)
— Enterprise Products Partners (EPD)
— Fifth Third Bancorp (FITB)
— International Business Machines Corp. (IBM)
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