General Electric Co. and Johnson & Johnson are among 20 stocks investors should buy for their dividend yields after equities plunged and Treasuries surged in the past two weeks, JPMorgan Chase & Co. said.
The 17 percent drop in the Standard & Poor’s 500 Index from July 22 through yesterday has spurred investor concern of a recession, according to Thomas J. Lee, the New York-based chief U.S. equity strategist. While the likelihood that the U.S. economy will contract is low, investors should buy stocks with dividend yields that are higher than the 10-year Treasury yield and have strong earnings growth until equity markets recover, Lee wrote in a note to clients today.
“Active managers and hedge funds are focused on recession risk,” Lee wrote. “Equity markets globally continue to be under pressure and it is clear something is needed to break this downward momentum.”
Stocks slumped for more than two weeks as reports on manufacturing and consumer spending showed the world’s largest economy is slowing. S&P cut the U.S. government’s AAA credit rating at the end of last week, dragging the S&P 500 down yesterday by the most since December 2008 and increasing concern that the reduction may worsen an economic slowdown. Treasuries surged as tumbling equity markets sparked demand for the safety of government debt.
Ten-year note yields today touched 2.0346 percent, lower than the previous record of 2.0352 in December 2008. At the close yesterday, yields on 10-year notes were 2.32 percent, only four basis points higher than the S&P 500’s dividend yield of 2.28 percent. The S&P 500 rose 4.7 percent to 1,172.53 at 4 p.m. in New York.
GE, Johnson & Johnson and Sara Lee Corp. are among stocks that “via dividends alone provide a greater return than from owning the 10-year Treasury,” the note said. Each has a dividend yield of at least 2.7 percent, according to Bloomberg data. Lee and colleague Daniel McElligott identified 20 stocks with dividend payouts greater than the 10-year note’s yield as well as earnings-per-share growth forecast to be positive in 2011 and 2012. If rated by JPMorgan, they are rated “overweight” or “neutral.”
Here is the list of stocks recommended by Lee. Ticker symbols are in parentheses. Bank of New York Mellon Corp. (BK US) Computer Sciences Corp. (CSC US) Hasbro Inc. (HAS US) General Electric Co. (GE US) Raytheon Co. (RTN US) Supervalu Inc. (SVU US) Northern Trust Corp. (NTRS US) Weyerhaeuser Co. (WY US) Sara Lee Corp. (SLE US) Health Care REIT Inc. (HCN US) Ventas Inc. (VTR US) Safeway Inc. (SWY US) Baxter International Inc. (BAX US) Lockheed Martin Corp. (LMT US) Molson Coors Brewing Co. (TAP US) Pitney Bowes Inc. (PBI US) Verizon Communications Inc. (VZ US) General Mills Inc. (GIS US) Johnson & Johnson (JNJ US) Marsh & McLennan Cos. (MMC US)