17. Dominion Resources
Ticker:
D
Yield:
4.2%
Price Target:
N/A
A power and energy company that supplies both electricity and natural gas, Dominion trades at a P/E in-line with the higher multiples afforded to fully regulated utilities. It also has an above-average, low-risk EPS profile.
Source: Morgan Stanley
16. Oneok
Ticker:
OKS
Yield:
4.7%
Price Target:
$62.00
Even though natural gas prices are fairly low, a strong balance sheet and predominantly fee-based income will mitigate Oneok's exposure to commodity prices. The company has $6 billion+ invested in gas growth projects through 2015, which will drive growth.
Source: Morgan Stanley
15. Altria Group
Ticker:
MO
Yield:
5.3%
Price Target:
N/A
the company that founded Philip Morris, Altria is also in the tobacco business. This company has raised the dividend 46 times in the past 43 years, and operates with a manageable leverage of 2.3x.
Source: Morgan Stanley
14. Reynolds American
Ticker:
RAI
Yield:
5.4%
Price Target:
$47.00
The second larges tobacco company in America, Reynolds American has a payout of 82% from free cash flow and operates with a leverage of 2.0x.
Source: Morgan Stanley
13. American Electric Power
Ticker:
AEP
Yield:
4.2%
Price Target:
N/A
Delivering electricity to 11 states, American Electric Power's shares suffered last year because of the deregulation of its Ohio generation fleet. But positive regulatory outcomes over the past summer helped the stock recover.
Source: Morgan Stanley
12. Duke Energy
Ticker:
DUK
Yield:
4.5%
Price Target:
$73.00
Though Duke Energy is in a transitional phase right now, which will keep EPS flat, Morgan Stanley expects that regulatory overhangs will likely clear through the next year, after which shares will bounce back.
Source: Morgan Stanley
11. Phillip Morris
Ticker:
PM
Yield:
3.8%
Price Target:
$95.00
Operating in an industry known for high profit margins and substantial cash flow, Phillip Morris will benefit from significant geographic diversification, product innovation and cost savings realization. However, if the dollar continues to grow stronger it will probably hurt the company some.
Source: Morgan Stanley
10. Plains All American Pipeline
Ticker:
PAA
Yield:
4.3%
Price Target:
$54.00
Plains All American Pipeline's access to low-cost capital, premier management team and ability to optimize margins through crude oil price differentials will drive growth.
Source: Morgan Stanley
9. Kinder Morgan
Ticker:
KMP
Yield:
5.8%
Price Target:
N/A
"Kinder Morgan has the lowest distributable coverage ratio of 1.01x, but also offers EBITDA growth at a 20% CAGR through 2014 and dividend growth at a 6% CAGR through 2014."
Source: Morgan Stanley
8. Verizon
Ticker:
VZ
Yield:
4.8%
Price Target:
$47.00
"Verizon owns 55% of the wireless business, but faces many of the secular pressures on the wireline side (line loss, declining regulatory revenue, pension / OPEB obligations, expiring bonus depreciation). Nevertheless, the company raised the dividend by 3% in September 2012."
Source: Morgan Stanley
7. PG&E
Ticker:
PCG
Yield:
4.3%
Price Target:
N/A
An energy company that provides electricity and gas to most of California, PG&E has been facing multiple regulatory headwinds in the aftermath of its San Bruno incident. However, the dividend remains safe, according to Morgan Stanley.
Source: Morgan Stanley
6. Lorillard
Ticker:
LO
Yield:
5.2%
Price Target:
$.00
The top holding of the Dow Jones Select Dividend Index Fund (DVY), Lorillard screens well in Morgan Stanley's analysis, but they remain equalweight on the stock because of valuation and because the company is currently under regulatory scrutiny for its Newport brand of cigarettes.
Source: Morgan Stanley
5. Ameren
Ticker:
AEE
Yield:
5.0%
Price Target:
$39.00
Ameren's decision to exit the merchant generation, which was a drag on its EPS, will be good for the company. And the outlook for utilities combined with Ameren's newly implemented formula rate plan will drive growth.
Source: Morgan Stanley
4. Williams Partners
Ticker:
WPZ
Yield:
6.6%
Price Target:
N/A
"Williams Partners screens well in the analysis, and offers 7% CAGR dividend growth through 2014."
Source: Morgan Stanley
3. AT&T
Ticker:
T
Yield:
5.3%
Price Target:
$37.00
Solid growth in wireless communication combined with a healthy balance sheet and an entirely domestic market makes AT&T a "safe haven" for investors. In addition, the company is continuing to restructure its underperforming assets. However, AT&T faces some risk of competitive price pressures and prolonged macro uncertainty.
Source: Morgan Stanley
2. BCE Inc.
Ticker:
BCE
Yield:
5.0%
Price Target:
$47.00
The Canadian telecom industry has better fundamentals that the US market and only three major players, of which BCE Inc is one. And wireless penetration is currently at 76%, which means there room to grow. BCE will likely face price pressures from new entrants at lower price points, but they recently improved operations, and will likely gain a "proportionate share" of the market.
Source: Morgan Stanley
1. CenturyLink
Ticker:
CTL
Yield:
7.2%
Price Target:
$50.00
Another telecom company with a strong balance sheet and healthy cash flow, CenturyLink also has a management team with a strong turnaround record and a disciplined investing approach. The integration of two companies acquired by CTL: Qwest, a telecom company, and SAVVIS, a cloud infrastructure service provider, will also be great for the company.
Source: Morgan Stanley
