The Federal Reserve last month cut interest rates for the first time since 2008, ending a decade-long hands-off approach to monetary policy. While Fed chair Jerome Powell explicitly stated that this move is a one-off and does not herald a new round of cuts, most market watchers are predicting at least one more cut before the end of the year. At the same time, bond yields are at historic lows – the US 10-year Treasury note is below 1.6%, the 30-year note is near its all-time low, and the UK 10-year bond is below 0.5%. It’s a difficult minefield for return-conscious investors to navigate.
Which makes dividend stocks a natural choice. Public companies are not bound to the prevailing interest rates, and so even in times of high rates stock returns can outpace bonds. In today’s low-rate environment, stocks – and especially dividend stocks – are an investor’s best choice for a strong return. And since investing is all about profits and returns, let’s take a look at three stocks that offer high returns through premium dividends.
AT&T, Inc. (T)
The modern incarnation of Ma Bell, AT&T has long been one of the market’s best dividend stocks. While the payout is modest, at $2.04 per share annually, the yield, currently at 5.9%, puts T among the top-ten highest-yielding dividends in the S&P 500.
The high-yielding dividend isn’t the only attraction here – T shares have been on an upward trend for the past six months, gaining over 20% since early-February. In its recent Q2 earnings report, AT&T disclosed 89 cents EPS on $45 billion in revenues, meeting expectations despite a slide in DirecTV subscriptions. In the words of CEO Randall Stephenson, “We’re halfway through the year and on track to deliver on all our 2019 priorities. We continue to pay down debt and are more confident than ever that we’ll meet our yearend deleveraging goal, and we’ll look at buying back stock.”
AT&T shares currently sell for $34.54 and hold a Strong Buy rating from the analyst consensus, based on 7 buy and 2 hold rating given in the past three months. The average price target of $36.14 implies a modest upside potential of 4.6% for the stock.
Cowen’s Colby Synesael (a 5-star analyst according to TipRanks) reviewed T after the earnings report, and raised his price target 17% to $40. He said, “The company met or beat revenue/EBITDA for each segment except International versus our estimates. The company is on pace to meet or exceed its 2019 guidance.” Synesael’s price target suggests an upside of 15% for AT&T shares.
Boeing Company (BA)
It’s no secret that Boeing has taken a hard hit recently, as the company reported its largest-ever quarterly loss last month, of $2.9 billion. The losses come as the company’s 737 MAX airliner – its best-selling narrow-body jet – remains grounded after the two recent fatal crashes. With the grounding going on four months now, Boeing was forced to charge the costs – slower production lines and missed deliveries – on its quarterly report. The company reported 104 fewer aircraft deliveries in Q2 2019 compared to the year-ago quarter.
The news wasn’t all bad for Boeing and its investors, however. Boeing’s services business posted a $400 million revenue increase, while the defense segment gained $6.6 billion for the quarter. The company bid successfully on several Pentagon contracts, and the F/A-18 family of fighter jets remains in production.
Despite earnings loss, Boeing shares remain a strong investment. The company has proven resilient over the years, and has a reputation for consistently rewarding its shareholders with a lucrative dividend. The yield is modest at 2.44%, but the high share price boosts the annual payout to $8.22. Boeing has been consistently raising the dividend payout for the last decade.
Boeing remains a Strong Buy according to the analyst consensus. Even with the serious headwinds it has been facing this year, BA shares have received 12 buy and 4 hold ratings in recent months. Shares are priced at $337, but the average price target of $432 indicates that Wall Street’s analysts see the current trading level as too low. The upside potential is 28%, especially impressive given the high price of the shares.
Writing from Vertical Research Partners, Robert Stallard (a 5-star analyst) noted, “In terms of the numbers, 2Q was actually better than what we had conservatively modelled for Boeing… there remains considerable uncertainty in the estimates going forward, as there are no doubt many different assumptions regarding the MAX and its return to action.” Stallard set a $413 price target on the stock, lightly lower than the average, but still suggesting a 22% upside.
UnitedHealth Group, Inc. (UNH)
UnitedHealth is the world’s largest provider of health insurance, by any measure. The company posted over $226 billion revenues in 2018, and serves over 115 million customers. It’s a giant, in a giant industry. UNH has also used that revenue stream to pay back shareholders, steadily increasing the dividend since 2010. The payout is now $4.32 per year ($1.08 quarterly), on a yield of 1.74%.
In addition to the high dividend, UNH also offers investors a solidly profitable business. The company reported Q2 earnings in the middle of July, and beat the EPS estimate by 3.6%, showing $3.73 per share.
Steven Halper (a 5-star analyst) from Cantor Fitzgerald reiterated his buy rating on the stock after the earnings report, saying, “We continue to believe UNH is attractively positioned given its integrated model and consistent execution.” Halper gives UNH a $310 price target, indicating an upside of 24%.
Overall, UNH is another Strong Buy on the analyst consensus, based on 9 buys and 1 hold from the last three months. The stock’s shares sell for $248, so the average price target of $303 suggests an upside potential of 22%.
Visit TipRanks to find out what Wall Street’s best analysts are saying about today’s Trending Stocks.