These stocks could replace investors' fixed income plays with rates so low, according to AB Bernstein

Published Wed, Jul 22 20202:40 PM EDTUpdated Wed, Jul 22 20205:19 PM EDT

(This story is for CNBC Pro subscribers only.) Traditional bonds have lost their mojo as yields dove to record lows, and investors should look to certain stocks for stable income instead, according to AB Bernstein. "The best fixed income portfolio right now is …. in equities," AB Bernstein analyst Inigo Fraser-Jenkins told clients. "'Fixed income' portfolio right now might actually be a portfolio of higher quality equities where there is some visibility on the dividends." The spread between dividend yields and bond yields is wider than at any points since 1955, making stocks the new income plays, the firm said. While liquidity is currently trumping fundamentals, Bernstein said there is a valid reason to have a high equity weight portfolio. "High multiples at the very least mean that a period of high volatility is likely and also spell a prospect of near-term lower price appreciation. Hence a focus on income could make sense," added Fraser-Jenkins. AB Bernstein created a list for clients of stocks in stable sectors which have paid dividends consistently over the last 10 years. The stocks are also in the highest rank for free cash flow and dividend yield. The firm removed the stocks in the lowest ranking on balance sheet quality. Take a look at the list here. Bernstein's list is well represented with defensive stocks. Consumers have shown they will buy staple goods like toothpaste and laundry detergent, even in tougher economic times. Pepsico , Kimberly-Clark , Clorox and J.M. Smucker are relatively insulated from the coronavirus weakness, as consumers stock up on food and drinks and avoid physical restaurants. Plus, these stocks pay generous dividends. PepsiCo has a 3.1% dividend yield, Kimberly-Clark has a 2.4% dividend yield. Clorox and J.M. Smucker have dividend yields of 2.0% and 3.3%, respectively. Clorox has been a major beneficiary of the coronavirus crisis as people stock up on disinfecting products and bleach during the pandemic. Shares of Clorox are up more than 45% this year. Health-care companies are also defensive stocks, less tied to the economic cycle. CVS Health and Johnson & Johnson are stable names with 3.1% and 2.9% dividend yields, respectively. Health-care giant UnitedHealth and Medtronic also made Bernstein's list. UnitedHealth pays a 1.7% dividend and Medtronic has a 2.5% dividend yield. Philip Morris pays a generous 6.7% dividend yield. The tobacco producer beat on the top and bottom lines of its quarterly earnings on Tuesday. Philip Morris also gave a full-year outlook that is mostly above Street forecasts, as overall industry volume rebounds. — With reporting from CNBC's Michael Bloom.

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(This story is for CNBC Pro subscribers only.)

Traditional bonds have lost their mojo as yields dove to record lows, and investors should look to certain stocks for stable income instead, according to AB Bernstein.

"The best fixed income portfolio right now is …. in equities," AB Bernstein analyst Inigo Fraser-Jenkins told clients. "'Fixed income' portfolio right now might actually be a portfolio of higher quality equities where there is some visibility on the dividends."

The spread between dividend yields and bond yields is wider than at any points since 1955, making stocks the new income plays, the firm said. While liquidity is currently trumping fundamentals, Bernstein said there is a valid reason to have a high equity weight portfolio.

"High multiples at the very least mean that a period of high volatility is likely and also spell a prospect of near-term lower price appreciation. Hence a focus on income could make sense," added Fraser-Jenkins.

AB Bernstein created a list for clients of stocks in stable sectors which have paid dividends consistently over the last 10 years. The stocks are also in the highest rank for free cash flow and dividend yield. The firm removed the stocks in the lowest ranking on balance sheet quality.

Take a look at the list here.