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Wall Street Fettered by Three Concerns: 5 High-Yielding Picks

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After a terrific bull-run in the first two and half months of this year, it seems that volatility is back on Wall Street. Serious concerns about an impending global economic slowdown and possibility of recession (though not immediately) in the United States dented investors’ confidence. Moreover, expectations for first-quarter 2019 earnings are far from encouraging at present.

Investment in high-dividend paying stocks, over a reasonable time period, is likely to bring good returns, especially when the market is plagued with severe volatility. Consequently, it will be a prudent investment decision to bank on stocks with a favorable Zacks Rank and solid dividend yield.

Global Slowdown Looms Large

On Mar 22, IHS Markit reported that manufacturing PMI of Germany fell to 51.9 in March, its 69-month low. The manufacturing PMI of France also contracted in March to 48.7. The composite manufacturing PMI for the Eurozone fell to 51.3 in March from 51.9 in February.  

On Mar 7, the European Central Bank (“ECB”) lowered 2019 growth projection for the Eurozone to 1.1% from its earlier projection of 1.7%. Fearing an impending recession, yield on benchmark 10-year Treasury Notes of Germany entered negative territory.

On Mar 4, the Chinese authority pegged the country’s growth rate in the range of 6 - 6.5% in 2019. Notably, China’s growth rate in 2018 was 6.6%, its lowest growth rate since 1990. On Mar 8, China reported that the country’s dollar dominated export tumbled 20.7% year over year in February.

On Feb 4, Bank of England reduced the growth rate of the U.K. for 2019 to 1.2% from 1.7% forecast earlier. The root cause of the impending slowdown is the Brexit issue. Consumer confidence weakened significantly and business establishments almost froze capital spending owing to the prolonged Brexit problem.  

Likelihood of US Recession

On Mar 20, the Fed lowered U.S. GDP growth rate to 2.1% in 2019 from 2.3% projected in December. The central bank also decided to refrain from hiking interest rate this year.

Following the extra dovish stance of the Fed, yield on 3-month US Treasury Note surged ahead of benchmark 10-year US Treasury Notes on Mar 22. The yield inversion between 3-month and 1-year government bonds happened for the first time since 2007.

Notably, on Mar 25, the inverted yield curve further extended as the yield on 10-year bonds declined to 2.388%, its lowest level since December 2017. In fact, several economists consider inversion between the 3-month and 10-year bond yields as a clear indication of an upcoming recession.

Disappointing Earnings Expectations

First-quarter 2019 consolidated earnings are expected to decline. At present, total earnings of S&P 500 Index are expected to be down 3.3% from the same period last year on 5% higher revenues. If actual first-quarter earnings growth turns out to be negative, it will be the first earnings decline since the second quarter of 2016. (Read More: Soft Start to Q1 Earnings Season)

Our Picks

Given the current market volatility, it will be lucrative to invest in high-yielding stocks in order to ensure a steady income stream. We have narrowed down our search to five such stocks with a Zacks Rank #2 (Buy) and high-dividend yield. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows price performance of our five picks in the last three months.

The Progressive Corp. (PGR - Free Report) provides personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services primarily in the United States. It has a dividend yield of 3.45%. The company has expected earnings growth rate of 14.7% for the current year. The Zacks Consensus Estimate for the current year has improved 1.2% over the past 60 days.

OneMain Holdings Inc. (OMF - Free Report) provides consumer finance and insurance products and services operating in two segments - Consumer & Insurance and Acquisitions & Servicing. It has a dividend yield of 3.14%. The company has expected earnings growth rate of 11.7% for the current year. The Zacks Consensus Estimate for the current year has improved 1.8% over the past 60 days.

MFA Financial Inc. (MFA - Free Report) operates as a real estate investment trust primarily engaged in the business of investing in mortgage-backed securities. It has a dividend yield of 11.08%. The company has expected earnings growth rate of 10.3% for the current year. The Zacks Consensus Estimate for the current year has improved 1.4% over the past 60 days.

Great Western Bancorp Inc. (GWB - Free Report) focuses on business and agribusiness banking, complemented by retail banking and wealth management services. It has a dividend yield of 3.24%. The company has expected earnings growth rate of 10.7% for the current year. The Zacks Consensus Estimate for the current year has improved 0.9% over the past 60 days.

Brinker International Inc. (EAT - Free Report) owns, develops, operates, and franchises casual dining restaurants in the United States and internationally. It has a dividend yield of 3.54%. The company has expected earnings growth rate of 10% for the current year. The Zacks Consensus Estimate for the current year has improved 2.1% over the past 60 days.

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