Stocks paying high dividends have gained 15% or more so far in 2017, including both U.S. and European equities, but Barron's sees even more upside. Among those recommended in their recent cover story are these twelve, with their dividend yields and year-to-date total returns (price appreciation plus dividends):

  • Merck & Co. Inc. (MRK): 3.4% yield, -1.9% YTD total return
  • PepsiCo Inc. (PEP): 2.7%, +16.0%
  • Verizon Communications Inc. (VZ): 4.5%, +2.9%
  • AT&T Inc. (T): 5.2%, -6.8%
  • Daimler AG (DDAIF): 4.2%, +17.4%
  • Novartis AG (NVS): 3.2%, +20.1%
  • Deutsche Telekom AG (DTEGY): 3.8%, +8.0%
  • China Mobile Ltd. (CHL): 4.2%, +0.5%
  • Duke Energy Corp. (DUK): 4.1%, +17.6%
  • Edison International (EIX): 3.5%, -1.7%
  • SL Green Realty Corp. (SLG): 3.2%, -2.0%
  • Enterprise Products Partners LP (EPD): 6.5%, +2.5%

Total return data is through December 14. Barron's story was published on December 16.

Top Choice

Barron's top choice for income-oriented investors in 2018 is master limited partnerships (MLPs) related to energy distribution in the U.S., with Enterprise Products Partners as among Barron's top 10 stock picks overall for 2018. Cash flow for the industry is projected to grow in the mid single digits in 2018, and MLP shares look to be trading below historical levels, per Barron's. As oil output rises in the U.S., pipeline MLPs will benefit. (For more, see also: 10 Stocks With 'Significant Upside' in an Overpriced Market.)

Attractive Valuations

European companies prefer paying dividends to share repurchases, making this Barron's second most-favored group. Daimler, the maker of Mercedes-Benz vehicles, trades at a forward P/E of only eight, per Barron's, and shareholders may benefit from a planned spinoff of its truck-making unit.

Both Verizon and AT&T trade at forward P/E ratios of around 13, below the overall value of 20 for the telecom sector, Barron's says, adding that Verizon should benefit from an easing of price wars in the wireless market.

REITs have lagged the market in 2017, with YTD total returns of around 5% versus about 21% for the S&P 500 Index (SPX), per Barron's. The sector has a low multiple versus the S&P 500 and can generate mid- to high-single-digit returns in 2018, Barron's adds. SL Green, however, has a trailing twelve months P/E ratio of 97, per Barron's. On the other hand, this REIT trades at a discount to its private market value, Barron's says. Fitch Ratings recently upgraded SL Green, which invests primarily in Manhattan office buildings, to a positive outlook with a rating of BBB-, per Business Wire

China Mobile is the dominant wireless player in China, and has the strongest balance sheet among global telecom companies, with cash equal to about 30% of its market value, Barron's indicates. (For related reading, see: 8 Stocks That Can Outperform Amid Low Volatility: Goldman.)

Overlooked Potential

Merck has been out of favor with investors this year, but Barron's notes that they are a leading player "in the hot immuno-oncology area." Big consumer stocks such as PepsiCo offer the potential to deliver annual earnings growth in the mid- to high-single-digit range, Barron's believes. Meanwhile, Deutsche Telecom derives about 40% of its market value from its 64% ownership position in T-Mobile U.S. Inc. (TMUS), which has improving free cash flow, per Barron's.

Overblown Fears

California-based electric utility Edison International has been beaten down recently over concerns about its potential financial liability over recent wildfires in that state. These fears may be overblown, based on misinterpretations of California law, according to Hugh Wynne, an analyst at Sector and Sovereign Research, as cited by Barron's.

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