In the first half of 2020, many companies have cut back on their dividend payments, slashing or suspending them to conserve cash against the downturn. That trend appeared to reverse itself – or at least, to start to reverse itself – in August, when 13 companies announced dividend increases while only 2 announced cuts. Is this a signal that Q3 will show rebounding sentiment toward dividend and buyback policies? The recessionary pressure is easing; and dividends are a powerful attractor for cautious investors.
Looking at the current situation from Evercore ISI, market strategist Dennis DeBusschere believes the worse is over, saying, “[A] sharp drop in cash returns is unlikely [in 2h20.]” He believes that companies will continue, albeit slowly, to restore both dividends and buyback policies – but cautions that investors should not expect a return to pre-pandemic levels for until at least 2022.
“Though a recovery back to pre-pandemic levels is not likely for at least two years, the negative impact on high cash return names and income strategies should continue to stabilize through year end,” DeBusschere opined.
Following DeBusschere’s lead, Evercore’s stock analysts have been tagging high-yield dividend payers as likely prospects for investors looking to buy in. According to the TipRanks data, these are Buy-rated stocks, with at least a 7% dividend yield and upwards of 10% upside for the year ahead.
Columbia Property Trust (CXP)
The first stock on today’s dividend list is a real estate investment trust, Columbia Property Trust. Columbia holds a portfolio exceeding 6 million square feet of office space in New York, San Francisco, and Washington DC, with smaller investments in Boston, Mass. New York and San Fran were hit hard- by coronavirus and the lockdown policies implemented to halt its spread. That could have badly hurt the company- but Columbia’s 97% lease occupancy and long-term leases (the average term remaining is 6 years) provided a level of insulation.
That can be seen by CXP’s performance in 1H20. The company revenues and earning both grow sequentially in the first and second quarters of the year. Finishing the half, the top line reached $79.4 million for the second quarter, and Q2 EPS came in at 40 cents, well above the 35-cent forecast. In a key marker of the company’s fundamental strength, Columbia reported 97.2% success in rent collection, despite the corona pandemic.
The strong quarterly results are a welcome contrast to the share performance. CXP fell sharply in the first quarter, during the market’s mid-winter swoon, and has yet to recover.
The financial performance was the key, as far as the company’s dividend policy. In August, the company declared the Q3 payment, sent out on September 15, of 21 cents per common share. This was the fourth quarter in a row with the dividend at this level, and the annualized payment of 84 cents per share give a strong yield of 7.8%. CXP has a four-year history of gradual dividend increases.
Analyst Sheila McGrath, writing for Evercore, points out the obvious pressures in CXP’s office-space niche: “Sentiment to the office sector with work from home concerns has pressured valuations and increased Betas for the office names.” In analyzing the company’s particular situation, however, she also points out a clear strategy for continued success, saying, “CXP has high occupancy and limited near term rollovers on the horizon. Importantly, the majority of rollover in 2020 is at rents that are substantially below market. Consequently, we expect CXP to work with existing tenants to maximize renewals and minimize downside in the current uncertain environment.”
To this end, McGrath gives CXP an Outperform (i.e. Buy) rating, with a $15 price target indicating room for 39% upside growth. (To watch McGrath’s track record, click here)
Columbia Property Trust has a Strong Buy rating from the analyst consensus, based on 3 Buys and 1 Hold set in recent months. The stock’s share price is $10.77, and the average price target, at $15.50, is slightly higher than McGrath allows, and suggests an upside potential of 44%. (See CXP stock analysis on TipRanks)
Next up is an asset management stock, AllianceBernstein. AB provides both investment services, both research and management, for retail investors and high-net worth individuals around the world. The firm boasts over $640 billion in total assets under management.
AllianceBernstein saw 1H20 results that were the opposite of CXP’s above. The company’s share performance saw a large rebound after the February market collapse, and is up 96% from its March trough. That positive result was not reflected in the financial reports during the half. Both quarters saw sequential declines at the top and bottom lines, with the Q2 numbers coming in at 61 cents EPS and $63.2 million in revenue. Even with the decline in 2020, however, EPS was still up 9% year-over-year.
Management at AB has a history of both keeping the dividend reliable, not missing a payment, and of regularly adjusting the payment to keep it affordable. They have kept that policy during the corona crisis. The current payment is 61 cents per common share, and while this is down from the 85 cents paid out in February, it still yields 8.9% for investors.
John Dunn, writing the review of AB for Evercore, was impressed by the firm’s ability to grow during the corona pandemic.
“A repeat of positive flows in both the retail & inst’l channels, setting up an impressive inflow month: AB’s month-end AUM of $643bn was above our / Street quarter-end estimates of $619bn / $618bn. AB saw 3% higher m/m AUM, on market gains in tandem with organic growth which we’ve now seen in 6-of-8 months so far in ’20,” Dunn noted.
Dunn gives AB shares a price target of $32, suggesting a one-year upside of 9.5% and supporting his Outperform (i.e. Buy) rating. (To watch Dunn’s track record, click here)
Overall, AllianceBernstein shares, with a 2 recent Buy reviews, have a Moderate Buy rating from the analyst consensus. The shares have an average price target set at $30.50, which implies an upside of 11% from the current trading price of $10.77. (See AB stock analysis on TipRanks)
MGM Growth Properties (MGP)
With the last stock on our list today, we move back to the REIT sector. MGM Growth Properties focuses on entertainment and leisure properties, with a portfolio of 13 destinations in 8 states, mainly casinos and luxury hotels, totaling over 27,000 rentable rooms.
As can be imagined, the corona crisis has not been kind to a luxury resort company; social distancing rules and restrictions on commerce have put a damper on both the casino and hotel industries. EPS for each quarter of 1H20 came in at just 56 cents – down from 58 cents in 4Q19 and 59 cents 3Q19. In addition, the 2020 results have come in well below the forecasts. MGP took moves in the second quarter to protect itself from the decline in earnings, with an issue of senior notes worth $800 million.
Despite the shock to its business niche, MGP shares showed a strong bounce back from the market crash earlier in the year. The stock is up 119% from its lowest point.
The mixed results of the recent months, and the uncertain future during this ‘corona time,’ has not derailed MGP’s dividend policy. The company has been gradually growing the payment for the past 4 years, and raised it again for the June payment this year. The current dividend payout is 48.75 cents per common share, or $1.95 annually. The yield is robust, at 7%, or nearly 3.5x the average found among S&P-listed stocks.
Evercore’s Steve Swaka acknowledges weaknesses in MGP’s position, but also points out that the company has a powerful ally in sister-company MGM: “As we have stated at other times recently, although prior to COVID many investors had viewed MGP’s relationship with MGM as a net-detriment to the investment thesis, under the current circumstances it’s hard to see where this has not turned out to be a net-positive.”
Overall, Swaka rates MGP shares an Outperform (i.e. Buy) along with a $34 price target. This figure indicates room for 21% growth in the year ahead. (To watch Swaka’s track record, click here)
The analyst consensus rating on MGP shares is a Strong Buy, based on 5 Buy reviews and a single Hold set in recent weeks. The stock’s $28.50 share price and $33 average price target make the one-year upside 15.5%. (See MGP stock analysis on TipRanks)
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