“Investors should consider defensive stocks,” says JPMorgan. Here are 2 high yielding dividend names to consider

Markets are bullish in recent sessions and year-to-date losses have moderated somewhat. The NASDAQ, which has taken the biggest hits this year, is back above 12,200, although it is still down 22% this year. The S&P 500 has managed to climb back out of the bear market, it’s above 4,100 now and its year-to-date loss is 14%. Neither index has retested the June low in the past two months and recent trends are up.

Writing for JPMorgan, international investment strategist Elyse Ausenbaugh gives a good summary of current conditions: “The Fed is still talking tough on inflation, bond yields remain at or near cycle highs, and the world’s other major economies continue face serious risks… , having had enough time to process the risks we face, investors overall don’t seem to have the same sense of ‘impending doom’ that they did a few months ago.”

While the sense of doom and gloom may be receding, Ausenbaugh isn’t recommending a whole-hearted bullish attitude on the part of investors. The strategist is firmly bullish on defensive stocks for now, saying, “As capital managers, this prompts us to continue to focus on more defensive tilts over the next year in the core portfolios we manage.”

JPM’s equity analysts are following the company strategist’s lead, picking defensive stocks that will add a layer of protection to investors’ portfolios. Their approved defense: high-yielding dividend payers, a traditional play but one that has proven effective over the years. Let’s take a closer look.

AT&T (T)

We’ll start with one of the most well-known “dividend champions” in the stock market, AT&T. This company needs little introduction. It is one of the oldest names in telecommunications and its blue logo is one of the most recognizable brands in the world. AT&T has changed over the years as telegraph and telephone technology has changed. The modern company is a provider of US landline, fiber broadband and wireless networks and has invested heavily in 5G development in North America.

AT&T posted total revenue of $168.9 billion last year. This year, however, its first half result of $67.7 billion is down significantly from the $88 billion recorded in the first half of 2011. The company’s most recent quarterly report, for 2Q12, showed its lowest top line in several years at $29.6 billion, although earnings remained fairly flat – the diluted EPS of 65 cents was in the middle of range (57 cents to 77 cents). the quarterly results of the last two years. The company’s cash flow took a hit in the quarter. Free cash flow fell year over year from $5.2 billion to $1.4 billion.

On a positive note, the company added over 800,000 fixed-pay phone accounts and 300,000 net fiber customers, making Q2 one of the company’s best for customer additions. Management attributed the negative cash results to higher corporate expenses related to 5G and an increase in the number of customers who are late on bill payments.

Through it all, AT&T has continued its quarterly dividend payments. The company has an enviable history of reliability. while it has made dividend adjustments to secure the payout, the company has never missed a quarterly payout since it began paying common stock dividends in 1984. The current payout was declared in late June and paid Aug. 1 at 27.75 cents per share. This is annualized to $1.11 and gives a yield of 6.5%. The yield is more than three times the average of S&P-listed companies and is high enough to provide a degree of insulation against inflation.

JPMorgan’s Phillip Cusick covers T and sees the stock as a sound defensive pick in today’s environment.

“Mobility continues to benefit from strong post-paid phone additions and ARPU is growing. Price increases and roaming revenue performance are expected to benefit service revenue growth in 2H12, helping to offset 3G and CAF-II shutdown revenue loss. Margins should increase year-on-year in 2H12 due to service revenue growth, cost savings and flat ad spend…AT&T remains a very defensive business and should have limited downside,” said Cusick.

To that end, Cusick rates AT&T shares an Overweight (i.e., Buy), seeing it continue to outperform the overall market, and sets a price target of $23 to suggest a 12-month gain of 32%. (To follow Cusick’s history, Click here)

Overall, AT&T shares have a Moderate Buy rating from the analyst consensus. This is based on 17 recent reviews, which break down into 9 Buys and 8 Holds. The stock is selling for $17.38 and its average target of $22.59 suggests a 30% gain over the next year. (See AT&T stock forecast at TipRanks)

Omnicom Group (OMC)

As AT&T could attest, successful branding is a necessity in modern business. The Omnicom Group lives in that world, providing branding, marketing and corporate communications strategies for over 5,000 corporate clients in more than 70 countries around the world. The company’s services include advertising, media planning and buying, direct and promotional marketing, digital and interactive marketing and public relations. Omnicom had revenue of more than $14 billion last year, with revenue of $2.2 billion.

With two quarters of 2022 behind us, it looks like Omnicom is on track to match last year’s performance. 1H22 revenue is in line with last year’s first half at $7 billion, as is diluted EPS at $3.07. The company posted these results, which were described as “strong” by management, despite the well-known headwinds that have buffeted the economy this year.

Omnicom announced its most recent dividend payment in July of this year, at 70 cents per common share. Payment will be made on October 12th. Annual interest, $2.80, yields 4%. Omnicom has kept its payment reliable since 1989, never missing a scheduled payment.

In his review of this stock, JPMorgan’s David Karnovsky writes: “The quarter’s results serve as another data point that supports our view that companies are operating in a structurally stronger market post-pandemic and that this will help soften some of the economic softness potentially ahead… We see the current share price as a good entry point for the long-term investor as we expect the company to eventually continue to return to a solid mid to high single digit earnings growth profile, while a healthy The dividend provides bearish support’.

This is an optimistic stance, and it comes with an equally optimistic overweight rating (i.e. Buy). Karnovsky’s $86 price target implies a one-year upside potential of 20%. (To follow Karnovsky’s history, Click here)

What does the rest of the street think? Looking at the consensus distribution, other analysts’ views are more prevalent. 5 Buys, 4 Holds and 1 Sell add up to a moderate buy consensus. Furthermore, the average price target of $80.43 suggests upside potential of 12% from the current trading price of $71.53. (See Omnicom stock forecast at TipRanks)

To find good ideas for trading dividend stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock information.

Denial of responsibility: The views expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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