After a four-month run of steady gains, September brought sudden, sharp, losses across the board. The NASDAQ, which peaked over 12,000 on September, has slipped just below 11,000, a loss of 9.4%, while the S&P 500 is down 6.7% in the same period. These are the deepest market losses since the crash of February/March earlier this year.
The losses raise questions for would-be investors, most importantly, is this the start of another bear market, or just a correction before another run of gains?
Whether this is an opportunity or the start of a bear, investors would be wise to take it as a warning. The bullish markets we’ve experienced this year will not last forever, and prudence would counsel taking steps to shore up the portfolio’s return potential. And that will lead investors into dividend stocks.
RBC, the premier investment banking firm, has been reviewing some of the highest dividend payers in the market today. The firm’s top analysts have located companies paying out yields of 13% or higher and boasting potential upsides that start at 20%. That’s not all that they have in common, so let’s pull up the TipRanks data and find out what some of Wall Street’s 5-star analysts have to say about them.
Energy Transfer LP (ET)
First on the list today is Energy Transfer, a midstream company with assets in 38 states. ET mostly operates in Midwest-Appalachian and Texas-Oklahoma-Louisiana regions, with additional assets in North Dakota, the Colorado Rockies, and northern Alberta. The company’s assets include pipelines, terminals, and storage tanks for natural gas and crude oil.
The recent crisis – both health and economic – have put a damper on profits, even in the lucrative hydrocarbon industry. ET has faced pressure from a combination of falling demand and pent up stockpiles, along with a brief collapse in oil prices in April. The company’s earnings and revenues have been declining through 2020 so far; the Q2 report showed a 60% year-over-year decline in EPS, to 13 cents per share, and a 47% yoy drop in revenues to $7.33 billion. While the company possesses deep cash reserves in excess of $5.5 billion as of June 30, that is down 26% from the end of last year.
Deep pockets allowed ET to keep up its dividend through the coronavirus crisis and economic turndown. The company pays out 30.5 cents quarterly, and the most recent payment, declared in July and paid in August, marked the 11th consecutive quarter with the dividend payment at that level. The current payment annualizes to $1.22 per common share, and gives a sky-high yield of 20%. That yield is 10x the average found among S&P-listed companies.
ET’s strong cash position, and its prospects for improving that position, drew it to the attention of Elvira Scotto, 5-star analyst with RBC.
“We believe ET is well-positioned to generate meaningful cash flow growth as large-scale growth projects come online over the next few years. Moreover, we expect growth capex to slow in the coming years, which should allow ET to reduce leverage and return more cash to unitholders via distribution increases and/or unit repurchase,” Scotto opined.
In line with her optimism on the stock, Scotto rates ET as Outperform (i.e. Buy), and her $10 price target implies an upside of 67% from current levels. (To watch Scotto’s track record, click here)
Overall, ET has a Moderate Buy consensus rating, based on 10 reviews evenly split between 5 Buys and 5 Holds. Shares are selling for $5.96, and the average price target of $9.70 suggests it has room for 63% upside growth this year. (See ET stock analysis on TipRanks)
EnLink Midstream LLC (ENLC)
Next on our list is another midstream company in the North American hydrocarbon universe. The company has operations in Appalachian region, across the states of New York, Pennsylvania, West Virginia, and Ohio, as well in the Gulf Coast region in Texas, Louisiana, and Oklahoma. ENLC is involved in all aspects of the natural gas midstream sector: tethering, treating, processing, transport, distribution, and supply and marketing.
Like Energy Transfer above, EnLink’s revenues have been declining through the first half of the year, under pressure from corona and the economic lockdown policies. Q2 saw the top line fall 32% to $767 million. Earnings remained positive, at 5 cents per share. EnLink reported over $134 million in net cash from operations in the second quarter, and an excess free cash flow of $72 million.
EnLink has kept up its dividend, in this case using the free cash flow to support the payments. EnLink has been keeping the payments reliably for the past several years – but has adjusted the payout to keep the dividend viable in a time of falling profits. The current dividend is 9.375 cents per common share – it was paid out in mid-August. The dividend yields 14.7% at this level, and annualizes to 37.5 cents per share.
RBC analyst T J Schultz sees EnLink’s ability to generate free cash flow as the key here, saying, “ENLC is positioned to weather lower producer activity through cost controls and dividend reductions that allow for meaningful FCF through 2022. We believe ENLC can realize the benefit of a diversified asset footprint that can capture producer activity shifts to areas driven by gas and NGLs prices…”
Schultz, rated 5-stars at TipRanks, rates ENLC with an Outperform (i.e. Buy). His $5 price target indicates an upside potential of 102% for the next 12 months. (To watch Schultz’s track record, click here)
Overall, ENLC has 3 recent reviews on record, split between 1 Buy, 1 Hold, and 1 Sell, making the analyst consensus rating a Hold. The average price target is $3, and suggests an upside of 21% from the $2.49 trading price. (See ENLC stock analysis on TipRanks)
Chimera Investment Corporation (CIM)
Last on today’s list is a real estate investment trust Chimera Investment. REITs are perennial dividend champs, as they are required by tax code to return profits to shareholders. Chimera, which focuses on residential mortgage loans and mortgage backed securities, maintained a dividend of 50-cent per quarter payment per share of common stock until the most recent declaration. That payment, made in July, was for 30 cents per share.
The payment was lowered to account for reduced income and earnings during the recent crisis. The 30-cent payment puts the dividend yield at 13.7%, still impressively high, especially when compared to the 2.6% average yield found among peer companies in the financial sector.
Kenneth Lee, writing on CIM for RBC, sees a clear path forward long-term. He writes, “During the qtr, CIM obtained more stable financing than before and strengthened its liquidity position. While there is still some uncertainty around mortgage credit given macro backdrop, we think the risk/reward balance for CIM is attractive for investors with a longer-term horizon… We think CIM's focus on resi credit should enable it to generate above-peer-average returns long term…”
Lee’s bullish stance backs up his Outperform (i.e. Buy) rating. The analyst gives the stock a $10 price target that implies a potential upside of 15%. (To watch Lee’s track record, click here)
The three ratings on CIM break down to 2 Buys and 1 Hold, making the analyst consensus rating a Moderate Buy. Shares are selling for $8.61, and the $11 average price target suggests an upside of 28%. (See CIM stock analysis on TipRanks)
To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.