The COVID-19 pandemic shaved roughly 40% from equity prices between mid-February and late March of this year. Stay-at-home orders virtually shut down the U.S. economy, as American consumers who normally drive around two-thirds of the economy hunkered down at home with their hands firmly holding on to their wallets.
Congress and the Trump administration pumped several trillion into the economy to keep Americans and American businesses solvent. After a disastrous April, consumers recovered somewhat in May and June, as spending rose when many nonessential businesses reopened.
For investors, what could have been a disaster instead turned into an opportunity, especially for investors in growth stocks. Since March 23, the Nasdaq Composite has risen by nearly 60%, while the S&P 500 is up about 48% and the Dow Jones industrials are up more than 44%. For the year to date, the Nasdaq is up about 22%, while the S&P 500 is up over 2% and Dow is down 6%.
Whether investors are inflating another bubble remains a topic of robust discussion, as does the question of whether there is such a thing as value investing anymore. Is a return of 5% or so worth the opportunity cost when there are stocks like Amazon that have gained 65% since late March? Or Tesla, up more than 240%, or Novavax, up nearly 1,400%, in the same time frame?
We’ve found five stocks that pay yields of around 6% or more and that appear to be capable of maintaining those yields for the next 12 months. All depend on a recovering U.S. economy over the longer term, but for now, they offer the returns and level of safety that define value stocks.
Altria Group Inc. (NYSE: MO) raised investors’ spirits last week when it reported better-than-expected earnings but light revenues. A two-cent increase in the quarterly dividend also helped. The company recently received FDA approval to sell its heat-not-burn IQOS system, licensed from Philip Morris, in the United States. While tobacco shipments continue to slide, Altria’s ability to raise prices never ceases to amaze.
Altria’s stock trades about 21% below its 52-week high. At Tuesday’s closing price of $41.60, the stock has a potential upside of nearly 18%. Shares trade at a multiple of nine times expected 2021 earnings. The dividend yield for the stock is 8.36%.
Annaly Capital Management Inc. (NYSE: NLY) currently trades at a sharp discount to its book value of $8.39. Even though Annaly lowered its dividend from $1.00 annualized to $0.88, analysts at Deutsche Bank raised the stock’s rating from Hold to Buy on July 24 and lifted its price target from $6.75 to $7.75. A week later, the bank affirmed the rating and raised the price target to $8.00.
The company’s shares closed at $7.32 on Tuesday, in a 52-week range of $3.51 to $10.50. At that closing price, the stock trades more than 30% below its 52-week high, with a potential upside of around 8%. The stock pays a dividend yield of 11.8%, while trading at about 7.5 times expected 2021 earnings.
AT&T Inc. (NYSE: T) is not receiving anticipated revenue for advertising around sports events. The company also expects lower revenue in the current quarter as movie theaters remain closed and new movie releases are delayed. Through it all, though, AT&T has said it expects to maintain a total dividend payout in the 60% range. July’s payout was at the low end of the company’s anticipated range.
At Tuesday’s closing price of $30.01, the company’s shares trade at nearly 25% below the 52-week high, with potential upside to the price target of more than 8%. AT&T pays a dividend yield of 7% and trades at about 9.2 times expected 2021 earnings.
Seagate Technology PLC (NASDAQ: STX) posted weak fiscal fourth-quarter results last week, and the stock lost close to 10% of its value as a result. Flat revenue guidance also was disappointing. However, annual earnings remain close to $2 per share higher than the company’s payout of $2.60 per share, and its dividend of around 5.8% still looks defensible.
At Tuesday’s closing price of $45.39, the stock trades about 30% below its 52-week high, with a potential upside of 10% to the consensus price target of $49.95. Seagate shares trade at about 8.6 times expected 2021 earnings.
Valero Corp. (NYSE: VLO) took a hit during the shutdown as sales of gasoline and other refined products went way south. With some pricing normalization returning, the company recently reaffirmed its dividend and continues to target a long-term total payout ratio between 40% and 50% of adjusted net cash provided by operating activities. Valero ended its second quarter with $12.7 billion of total debt and finance lease obligations and $2.3 billion of cash and cash equivalents.
The stock closed Tuesday at $53.02, 48% below its 52-week high of $101.99. Compared to a price target of $72.56, the stock’s potential upside is almost 39%, and the closing price is 16 times expected 2021 earnings. Valero’s dividend yield is nearly 7.3%.
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