Editors' pick. Updated from March 14 after the Fed's announcement that it will hold interest rates steady.
As expected, the Federal Reserve kept interest rates steady this week. And that could be a good thing for income investors.
Deutsche Bank analysts said they expect the next interest rate hike will be in June, six months after the initial liftoff from crisis levels in December.
"We believe the U.S. economy and especially its labor market will remain solid this year and now, given less risk of a euro plunge driving another dollar surge, we think it will be time for the Fed to hike again in June," Deutsche Bank analysts wrote in a March 11 note to clients.
"But let us be clear, we think the Fed should hike at a pace much slower and to a neutral level much lower than history," the note said. "We think the Fed should hike in June and not again until after the U.S. election in December. We think hikes this cycle should be spaced [four to six] months apart unless inflation becomes a clear threat."
Interest rate rises that are slow with modest U.S. dollar appreciation are good for the S&P 500, the analysts wrote.
"If the [European Central Bank] doesn't go more negative and the Fed communicates slow hikes, we think this relieves [foreign exchange] risk at big-cap multinational tech and health care stocks, which should boost their [price-to-earnings ratios]," the note read. "Some Fed hikes and a somewhat stronger dollar should keep inflation low and keep interest rates low, which should boost the S&P's P/E."
Deutsche Bank reiterated a preference for stocks in the financial services, technology and consumer discretionary sectors and suggested investors stay away from energy, materials and industrial stocks.
Health care stocks offer "the most reward with the least cyclical risk," while consumer staples companies are "expensive, but demonstrate the ability of low interest rates to boost P/Es despite low growth," the note said. Those looking for income "should look for dividend payers more at high-quality financials and health care as the likelihood of a June [rate] hike increases," the analysts wrote.
TheStreet culled Deutsche Bank's list of favorite large-cap stocks with dividend yields above 3.5%.
The stocks on this list are covered by the German bank. They all have market caps above $8 billion, price-to-earnings multiples on 2016 earnings that are less than 22 times, and price upside that is greater than 10%.
We've paired the list with commentary from Jim Cramer if the stock is owned by his Action Alerts PLUS Charitable Trust Portfolio.
Market Cap: $12.6 billion
Dividend Yield: 3.8%
P/E on 2016 EPS: 21.8x
12-Month Total Return: -23.5%
Invesco (IVZ) is a publicly owned investment manager. The firm provides its services to retail clients, institutional clients, high-net worth clients, public entities, corporations, unions, non-profit organizations, endowments, foundations, pension funds, financial institutions and sovereign wealth funds. Invesco is headquartered in Atlanta.
Deutsche Bank rates Invesco a buy, with a price target of $33. The analysts believe Invesco's current stock price has a 16% upside.
Market Cap: $139 billion
Dividend Yield: 3.8%
P/E on 2016 EPS: 11.6x
12-Month Total Return: 2.5%
Cisco Systems (CSCO) designs, manufactures, and sells Internet protocol-based networking products and services related to the communications and information technology industry worldwide. Cisco is headquartered in San Jose, Calif.
Deutsche Bank rates Cisco as a buy, with a price target of $33. The analysts believe Cisco's current stock price has a 21% upside.
Jim Cramer's Action Alerts PLUS charitable trust portfolio owns shares of Cisco. Cramer and Jack Mohr, Action Alerts PLUS' research director, wrote in their most recent weekly roundup:
"Cisco acquired cloud-based search start-up Synata and created a $150 million developer innovation fund in a dual announcement that we consider game-changing. Cisco's cloud-based communication platform, Cisco Spark, underpins the majority of the company's $4 billion Collaboration business and enables customers of all sizes to message, meet or call within a secure, cloud-based platform.
"The deal is uniquely transformative as it solves the once-impossible task of marrying impermeable security with world-class search functionality. We believe the partnership has the potential to revolutionize cloud-based communications and, in doing so, unlock a previously untapped addressable market while empowering Cisco's existing ecosystem."
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Market Cap: $22 billion
Dividend Yield: 4.0%
P/E on 2016 EPS: 16.1x
12-Month Total Return: 2.9%
Prologis (PLD) is an independent equity real estate investment trust. It invests in the real estate markets across the globe. The firm engages in the ownership, development, management and leasing of industrial distribution and retail properties. It was previously known as Security Capital Investment Trust. Prologis is headquartered in San Francisco.
Deutsche Bank rates Prologis as a buy, with a price target of $48. The analysts believe Prologis' current stock price has a 16% upside.
Market Cap: $186 billion
Dividend Yield: 4.0%
P/E on 2016 EPS: 12.9x
12-Month Total Return: -8.2%
Pfizer (PFE) is a biopharmaceutical company that discovers, develops, manufactures, and sells health care products worldwide. The company operates Global Innovative Pharmaceutical; Global Vaccines, Oncology and Consumer Healthcare; and Global Established Pharmaceutical segments. Pfizer is headquartered in New York. N.Y.
Deutsche Bank rates Pfizer as a buy, with a price target of $41. The analysts believe Pfizer's current stock price has a 39% upside.
Market Cap: $28.3 billion
Dividend Yield: 4.2%
P/E on 2016 EPS: 18.2x
12-Month Total Return: 3.9%
Crown Castle International (CCI) , together with its subsidiaries, owns, operates, and leases shared wireless infrastructure in the U.S. and Australia. The company provides towers and other structures and distributed antenna systems, a type of small cell network (small cells). It provides access, including space or capacity to its towers, small cells, and third-party land interests via long-term contracts in various forms, including license, sublease and lease agreements. The company is headquartered in Houston.
Deutsche Bank rates Crown Castle International as a buy, with a price target of $98. The analysts believe the company's current stock price has a 15% upside.
Market Cap: $11.1 billion
Dividend Yield: 4.2%
P/E on 2016 EPS: 8.8x
12-Month Total Return: -48.8%
Western Digital (WDC) engages in the development, manufacture, sale and provision of data storage solutions that enable consumers, businesses, governments and other organizations to create, manage, experience and preserve digital content worldwide. The company's product portfolio includes hard-disk drives, solid-state drives, direct attached storage solutions, personal cloud network attached storage solutions, and public and private cloud data center storage solutions. Western Digital is headquartered in Irvine, Calif.
Deutsche Bank rates Western Digital as a buy, with a price target of $62. The analysts believe the company's current stock price has a 29% upside.
Market Cap: $19.7 billion
Dividend Yield: 4.4%
P/E on 2016 EPS: 7.1x
12-Month Total Return: -19.6%
HP (HPQ) provides products, technologies, software, solutions and services to individual consumers and small- and medium-sized businesses, as well as to the government, health and education sectors worldwide. It operates through Personal Systems and Printing segments.
The company was formerly known as Hewlett-Packard and changed its name to HP in October 2015. HP is headquartered in Palo Alto, Calif.
Deutsche Bank rates HP as a buy, with a price target of $13. The analysts believe the company's current stock price has a 14% upside.