UBS picks 9 ‘high quality’ stocks that pay big dividends

Published Tue, Jul 6 20217:32 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

UBS analysts have picked stocks they believe are of a better quality than their peers, and which also pay a dividend they say is unlikely to be cut. The bank said its analysts scrutinized each company, before providing their top picks by sector. In terms of regions, the U.S. is "safest" for dividend yields, with the probability of a dividend cut at 9.9% over the next 12 months, according to UBS, while the emerging markets region has a dividend growth rate of 11.6%, the analysts led by Amanda Jorgensen wrote in a July 1 research note. "Consumer Discretionary has the largest forecasted dividend growth and Energy appears to be at the highest risk of a dividend cut with a probability of a dividend cut of 29.9%," the analysts added — the figures are the overall average and include the U.S., Pacific, Europe, Japan and emerging markets regions. The overall dividend yield for consumer discretionary stocks is forecast to grow an average of 19.4% overall, followed by materials with 16.6%. Nine of the stocks included on the bank's list of high-quality and dividend-paying firms are below. Each stock leads its sector. Intel is a pick for UBS in technology, with a dividend yield of 2.48%, while in real estate the bank chose American Tower Corporation , an operator of telecommunications infrastructure, estimating its dividend yield at 2.07%. In utilities, UBS analysts picked NextEra Energy , a renewable power firm, with an estimated dividend yield of 2.18%, and its energy sector top pick is oil company EOG Resources , with 2.3%. European stocks picked by UBS include auto firm Porsche , with a forecast dividend yield of 4.07% and Spanish bank Santander , with an estimated yield of 5%. It also chose South African telecoms company MTN Group under its communications services sector, with an estimated yield of 3.51%. The bank's top industrials pick is military shipbuilder Huntington Ingalls , with an estimated dividend yield of 2.35%, and it chose U.S. pharmaceuticals company Merck as its health care pick, with an estimated yield of 3.41%. The UBS analysts said they had revised the way they assess stocks for the screen and now use fewer data sources to avoid inconsistencies. The firm uses algorithms to assess stocks. "We want stocks with a high quality dividend stream, as well as the earnings power and balance sheet to support it. We also quantitatively assess the potential for the name to outperform its sector," the analysts wrote. The top-scoring firms are then assessed by analysts looking at "subjective" factors such as investor sentiment and company management. "Throughout the process, we emphasise the stability and growth potential of dividend streams, as opposed to the current yield," UBS said.

Wind turbines at the San Gorgonio Pass wind farm, owned by NextEra Energy Inc., in Whitewater, California.

Bing Guan | Bloomberg | Getty Images