2 Big Dividend Stocks Yielding 10%; RBC Says ‘Buy’
Rising raw material prices, additional incentives for the federal government and rising yields on government bonds are causing inflation to arise. In addition, there is growing concern that stocks - and technicals in particular - are now receiving unrelated valuations. Will the Changing Macroclimate Pull Back the Bull Market?
Too early to say, but it signals that a more prudent approach to investing might be a good move right now.
And that brings us to dividend stocks. Investors want a pad that protects their portfolio in the event of a market collapse, and dividends offer just that. These profit sharing payments to shareholders provide a steady stream of income that tends to stay reliable even in a downturn.
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The analysts at RBC Capital did some of the work for us, identifying dividend stocks that have held high yields of just over 10%. When we open the TipRanks database, we examine the details behind these payments to find out what else makes these stocks compelling purchases.
Annaly Capital Management (NLY)
First of all, Annaly Capital Management is a Real Estate Investment Trust (REIT). Annaly has a portfolio of commercial properties with a strong focus on retail (31%) and office space (29%). Other major investments are apartment buildings, hotels and healthcare properties. The company has total assets of over $ 100 billion.
In the company's fourth quarter 20 results, Annaly showed an economic return of 5.1% for the fourth quarter, far higher than the 1.8% reported for 2020 as a whole. EPS was 60 cents per common share and more than covered the regular quarterly dividend of 22 cents. This is the third quarter in a row with a dividend at this level. At an annualized rate of 88 cents per common share, the dividend is 10.7%. This is head and shoulders above the ~ 2% return of peers in the financial sector. Annaly has a long history of tailoring its dividend payment to earnings, which makes it a reliable payer.
Annaly was also of interest to investors, ending the fourth quarter with $ 8.7 billion in unencumbered net worth, including cash. The company used this deep pocket to approve a $ 1.5 billion common stock repurchase program to return capital to shareholders and prop up stock prices.
RBC's 5-star analyst Kenneth Lee likes what he sees in Annaly's performance. Loan assets, including residential and commercial mortgage loans and loans for small and medium-sized businesses. We believe that diversification should allow NLY to switch between attractive investment opportunities. "
Consistent with these comments, Lee rates NLY as an outperform (i.e. buy) along with a price target of $ 9.50. This number implies an upward trend of 14% for the coming year. (To see Lee's track record, click here.)
Overall, there is broad consensus on Wall Street on the quality of NLY, as evidenced by the 7: 1 split among analyst ratings, favoring Buy over Hold, and giving the stock a strong consensus rating for buy analysts. The stocks are currently trading at $ 8.22, and their average price target of $ 9 suggests upside potential of 9.5% from that level. (See NLY stock analysis on TipRanks)
Sunoco LP (SUN)
We are switching from REITs to the energy industry. Sunoco LP is the largest fuel wholesaler in the United States, serving more than 7,300 Sunoco gas stations in 33 states. The company's products include gasoline, diesel fuel, heating oil, jet fuel, lubricating oils, and kerosene - a full range of petroleum products sold as both branded and branded products. Sunoco also controls 13 storage terminals that ensure a secure supply for delivery to retailers. In the retail sector, Sunoco supplies equipment to petrol stations - from pumps to payment services.
This company's diversified business has enabled Sunoco to remain profitable during the corona pandemic crisis. EPS was negative in the first quarter when demand declined at the height of the crisis, but rebounded quickly in the second quarter and has grown year over year in each quarter since then. The EPS for the fourth quarter was 77 cents after 75 cents in the same quarter of the previous year.
Distributable cash flow declined from $ 120 million a year ago to $ 97 million for the quarter, and the company announced a quarterly dividend of 82.5 cents per common share. This was kept stable compared to the previous quarter - and has actually been at this level since November 2016. Sunoco has paid a reliable dividend for the past 8 years. The current payment is $ 3.30 per share for a yield of 10.6%.
Regarding SUN for RBC, analyst Elvira Scotto notes that recent arctic storm patterns in the continental US have negatively impacted sales volume but continue to be driven by other factors.
“SUN maintained its guidance for 2021 and saw an improvement in volume in January. We don't expect recent weather conditions to have a significant impact on SUN's volume in 2021, ”said the 5-star analyst. “We believe SUN is showing investors substantial ongoing income with an improved balance sheet. We expect SUN to maintain its distribution and that sales coverage will improve over time. "
Scotto rates SUN stocks as outperforming (i.e. buying) and increasing their price target from $ 36 to $ 38. The number implies an upward trend of 23% for the next 12 months. (To see Scotto's track record, click here.)
Overall, SUN stocks have a moderate buy rating from analyst consensus based on a number of ratings including 5 buys, 2 holds, and 1 sell. The stock has an average price target of $ 33.50, which translates into an upside potential of 8% from the current trading price of $ 31. (See SUN stock analysis on TipRanks)
To find great ideas for trading dividend stocks at attractive valuations, check out TipRanks 'Best Stocks to Buy, a newly launched tool that brings together all of the insights into TipRanks' stocks.
Disclaimer: The opinions expressed in this article are solely those of the presented analysts. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.
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