Analysts recommend these stocks for their dividends.
Inflation is the talk of Wall Street these days. Last week, the Federal Reserve raised its 2021 inflation forecast, known as the personal consumption expenditures price index, from 2.4% to 3.4% — well above its long-term target of 2%. In May, the Consumer Price Index gained 5% year over year, its highest jump since 2008. The Fed has said elevated inflation levels are “transitory” as the U.S. economy opens back up to full capacity. But investors who worry that inflation is here to stay should consider these nine dividend stocks that could outperform in an inflationary environment, according to Bank of America.
Morgan Stanley (ticker: MS)
Morgan Stanley is one of the world’s largest investment banks. Analyst Michael Carrier says Morgan Stanley has healthy organic growth, is hitting its financial targets, has strong capitalization ratios and is benefiting from elevated financial market activity around the world. Looking ahead, Carrier says there is room for earnings multiple expansion if Morgan Stanley can generate at least 3% organic growth. Demand for new products has been high, and Morgan Stanley has international expansion opportunities as well. The stock pays a 1.6% dividend. Bank of America has a “buy” rating and a $105 price target for MS stock.
Huntington Ingalls Industries (HII)
Huntington Ingalls Industries is one of two primary shipbuilders for the U.S. government. Analyst Ronald Epstein says Huntington has an impressive backlog of shipbuilding projects, generates robust free cash flow and is one of the prime beneficiaries of President Joe Biden’s Indo-Pacific strategy. Epstein says Huntington management is open to returning excess cash flow to shareholders via dividend hikes and buybacks, but it could also pursue buyout deals, particularly in its technical solutions segment. Huntington pays a 2.1% dividend. Bank of America has a “buy” rating and a $255 price target for HII stock.
PNC Financial Services Group (PNC)
PNC Financial Services is one of the largest U.S. banks specializing in traditional banking, commercial mortgage services and asset management. Analyst Erika Najarian says PNC is well positioned to benefit from a return to normalized capital expenditures in the second half of 2021. Once PNC’s merger with BBVA USA is complete, Najarian estimates that 53% of the bank’s total loan portfolio will be commercial and industrial loans. PNC pays a 2.4% dividend, and Najarian projects a return to buybacks starting in the third quarter. Bank of America has a “buy” rating and a $211 price target for PNC stock.
Metlife is a leading diversified life insurance and financial services company. Analyst Joshua Shanker recently raised his 2021 earnings-per-share estimate for Metlife to $7.15 — more than consensus analyst estimates and up 16.1% year over year. Shanker says his upward revision is based on Metlife’s first-quarter earnings beat and his expectation that variable investment income will continue to exceed historical levels. Also, Shanker says investors don’t seem to fully appreciate Metlife’s business mix following its Brighthouse spinoff. Metlife pays a 3.1% dividend. Bank of America has a “buy” rating and a $71 price target for MET stock.
Travelers Cos. (TRV)
Travelers is one of the top property and casualty insurers. Shanker says that property and liability pricing increases should help Travelers expand its margins, and pricing and growth trends in homeowners insurance are healthy and positive. Travelers shares have lagged recently, but Bank of America projects 5% EPS growth in 2021 and another 10% growth in 2022. Travelers pays a 2.3% dividend. The company also resumed its share repurchases in the fourth quarter of 2020 by authorizing a $5 billion buyback plan. Bank of America has a “buy” rating and a $174 price target for TRV stock.
Sempra Energy (SRE)
Sempra Energy is a natural gas transmission and distribution company. Analyst Julien Dumoulin-Smith says Sempra has an attractive risk-reward profile given its reliable utility business and the potential upside from attractive return on equity in the California market. Dumoulin-Smith says Sempra’s exposure to Mexico and its liquefied natural gas business are risks, but Sempra has plenty of valuation upside to justify the uncertainty. Bank of America projects 5% EPS growth in 2021 and 7.9% growth in 2022. Sempra pays a 3.2% dividend. Bank of America has a “buy” rating and a $156 price target for SRE stock.
Bank of New York Mellon Corp. (BK)
Bank of New York Mellon provides asset servicing, asset management and financial market services. Carrier says interest rate headwinds have pressured net interest income in recent quarters. However, after three years of declines, Carrier expects 6.6% net interest income growth in 2022. He projects 3.1% EPS growth in 2021 and 12.7% growth in 2022 and says the stock is attractively valued at just 11.1 times forward earnings. Bank of New York Mellon also pays a 2.4% dividend. Bank of America has a “buy” rating and a $53 price target for BK stock.
Best Buy Co. (BBY)
Best Buy was among just a handful of legacy retailers that navigated the 2020 shutdowns successfully, reporting 8.3% revenue growth and $1.8 billion in net income. Analyst Curtis Nagle says Best Buy is well positioned for the economic recovery phase as well, and the tech devices it sells are more important to consumers than ever. Best Buy is also testing a membership program, which includes a loyalty program, tech support and concierge services. The stock pays a 2.5% dividend. Bank of America has a “buy” rating and a $145 price target for BBY stock.
State Street Corp. (STT)
State Street is one of the world’s largest custody banks focused on investment servicing and research. Carrier says State Street faces near-term interest rate headwinds, but its growth initiatives will help offset that drag until rates improve. In the first quarter, the bank reported another three client wins for State Street Alpha, its cloud-native data platform for institutional clients. Carrier projects that EPS growth will accelerate from 3.1% in 2021 to 15.2% in 2022. State Street pays a 2.5% dividend. Bank of America has a “buy” rating and a $93 price target for STT stock.
Nine dividend stocks to buy as inflation protection:
— Morgan Stanley (MS)
— Huntington Ingalls Industries (HII)
— PNC Financial Services Group (PNC)
— Metlife (MET)
— Travelers Cos. (TRV)
— Sempra Energy (SRE)
— Bank of New York Mellon Corp. (BK)
— Best Buy Co. (BBY)
— State Street Corp. (STT)
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