Buy these ‘income darlings’ to boost your portfolio, says Jefferies
Source
As geopolitical tensions rattle markets and drive sharp swings in stocks, Jefferies is advising investors to lean into companies with strong fundamentals and sturdy dividends. Stocks have been whiplashed the past several weeks, with the onset of the Iran war triggering a massive market selloff and a ceasefire causing a big rally. From March 2 — the first trading day after the initial Middle East strikes began — until March 30, the S & P 500 's low of the year, the global benchmark shed nearly 8%. But peace talks and the ceasefire have propelled stocks in recent days, with the index last week making up all of its losses since the beginning of the war. Year to date, the S & P 500 is now up nearly 4%. But in a dicey macroeconomic backdrop, Jefferies recommended investors consider "income darlings," or companies built for continued sharing of profits through dividends and stock buybacks. "Global markets remain volatile amid geopolitical changes and fluctuations in expected government, monetary policy and economic outcomes," the investment firm wrote. "We maintain the view that prudent portfolios include an element of ballast." In the report, Jefferies highlighted stocks that fit into this category, with some companies included in the table below. The screen searched for stocks with: Substantial dividend yields (4.3% on average) Strong fundamentals Unstretched payout ratios ( < 90%) that offer a cushion against bad times Pristine distribution track records, with no cuts in the past five years Target was one name on the list. Jefferies' $140 price target offers upside of nearly 8% from where the retail giant closed on Monday. Shares of Target have surged 35% this year. The company's dividend yield pays out at 3.50%. "We like TGT given its combination of a ~4% dividend yield, a 50Y + track record of consecutive annual dividend increases and a clearly defensible payout profile (implied payout ratio of ~61% on TGT's Adj. EPS)," analyst Corey Tarlowe wrote. "Additionally, we see an improving earnings backdrop, with margin recapture [opportunities] driven by continued inventory discipline and high-margin revenue streams, pointing to a credible path to earnings growth following recent Y/Y pressure." Jefferies also highlighted CVS Health . Shares of the retail pharmacy chain and health insurer have slipped 2% this year, but analyst Brian Tanquilut's $98 target implies upside of nearly 28%. Tanquilut noted that while earnings in CVS's Aetna Health Insurance unit "compressed dramatically" from 2022 to 2024, thanks to challenging fundaments coinciding with a push for growth, management has since stabilized the unit and repositioned it for expanded profit margins and earnings recapture. "CVS has a generally strong cash flow profile & with earnings growing at an accelerated rate, mgmt. should have optionality to reintroduce a share repurchase program over the next few years while valuation remains compelling at < 10x Cy27 P/E," he wrote. "That outlook, paired with consistent dividend returns, helps curb downside risk for CVS, while execution of their LT targets could also drive an inflection in the multiple." CVS's current dividend yield comes out to 3.47%. Jefferies analyst David Chiaverini highlighted regional bank Zions Bancorp , up 6% this year. Chiaverini's price target of $70 is approximately 11% above where the Salt Lake City-based lender closed on Monday. "We believe Zions' outlook for key growth drivers, including loans, net interest income, and fee revenue, is improving, and that a strengthening growth trajectory could support multiple expansion over time," he wrote. "Over the next 12 months, we expect [net interest income] to trend toward the high end of January's guidance for moderate growth (4–6%), driven by the company's asset sensitivity and a macro backdrop that now implies fewer rate cuts." Zions currently offers investors a dividend yield of 2.85%.