These stocks offer attractive dividend yields and are cheap, Wolfe says

CNBC

22-05-2025

Stocks are on a shaky path once more as deficit fears rattle markets, but investors may be able to find solid income if they pick out the right dividend payers. A recent spike in Treasury bond yields has kept stocks under pressure this week. At its session high on Thursday, the 30-year Treasury bond yield surged to 5.161% and the benchmark 10-year note yield topped 4.6%. The sell-off in U.S. government debt came as the House of Representatives approved President Donald Trump's sweeping tax bill and sent it to the Senate. The measure includes a higher exemption for state and local tax taxes, lifting the deduction to $40,000 from its current $10,000. For investors seeking long-term plays, Wolfe Research compiled a list of stocks with second quintile dividend yields — meaning their payouts land between 60% and 80% of the highest — and low price-earnings ratios. The second quintile of dividend yielders can be a fertile ground for income investors, as companies that pay the richest yields may be more likely to cut their payments if their finances come under pressure. Further, a dividend yield that is very high may suggest that a stock's price is slumping and the business is under stress. See below for a list of some stocks that Wolfe gathered. Western Alliance Bancorp made Wolfe's list. The stock is down about 13% year to date, but offers a dividend yield of 2.1%. Earlier this month, Truist Securities initiated coverage on a slate of regional banks, including Western Alliance. The firm gave the Phoenix-based bank a buy rating, saying it's "among the fastest organically growing banks." "Western Alliance had been one of the most profitable banks across the [small- to mid-] cap space, boasting a ~20%+ [return on tangible common equity] from 2018-2022," Truist analyst David Smith wrote. "Returns took some lumps in '23/'24 as the balance sheet was fortified, but a 'bad year' for WAL is still peer-median." Though investors punished Western Alliance in the 2023 tumult that swept up regional lenders, the bank has since "emerged with strong capital and liquidity positions," Smith added. "Western Alliance is poised to once again be among the more profitable midsize banks," the analyst wrote. The bank is well liked on Wall Street with 12 of 13 analysts rating it the equivalent of a buy, and consensus price targets calling for nearly 27% upside, according to LSEG. Shares are currently trading at 7.7 times the next 12 months' estimated earnings, FactSet data shows. Qualcomm also showed up on Wolfe's list. The stock offers a dividend yield of 2.4%, and shares are down just 3% this year. The chipmaker currently trades at 12.4 times the next 12 months' estimated earnings, according to FactSet. Qualcomm posted fiscal second-quarter results that topped Wall Street estimates on the top and bottom lines, but its revenue forecast for the current quarter was short of expectations. The weak guidance didn't deter Bernstein analyst Stacy Rasgon, who has an outperform rating on Qualcomm. "In the near term, the company is playing it down the middle, neither swinging for the fences nor calling for the sky to fall," he said in a May 1 report. "And the magnitude of current results (decent, while not a blowout) makes us feel better about managing potential pull-forward risks." He added that "even if investors are not buying the stock at least management is, calling for 100% [free cash flow] return this year through elevated buybacks given the valuation of the shares." About half of the analysts covering Qualcomm rate it a buy or strong buy, and consensus price targets see nearly 20% upside from current prices, according to LSEG. Finally, retirement plan services provider Voya Financial made it past Wolfe's screen. Shares are down more than 2% this year, but Voya pays a dividend with a 2.7% yield. The stock currently trades at forward P/E ratio of 7.6 times estimated earrnings. Piper Sandler analyst John Barnidge reiterated an overweight rating on the stock in a May 11 report following a meeting with Voya's top brass. He highlighted several themes that could act as catalysts for the stock in coming quarters, including roughly $200 million of cash generation in the first quarter and the company's focus on integrating OneAmerica Financial's retirement plan business . "OneAmerica provided Voya a retirement brand boost as it demonstrated commitment to a market from which others in recent years have retrenched," Barnidge said. He added that Voya's wealth business also saw a "remarkable" $31 billion in inflows in the first quarter. The Street is largely divided on Voya, however: Six of 13 analysts rate it a buy, while consensus price targets call for nearly 17% upside, per LSEG. — CNBC's Michael Bloom contributed reporting