Volatility rules, all of a sudden, as the markets slipped significantly over the past two trading days. The swoon simply underlines the uncertainty of the times – with COVID-19 waning but not out, and the election polling tightening enough to make the Presidential race a toss-up, volatility should really be the expectation. And that means, simply, that markets might drop suddenly for reasons we just cannot divine.
It’s times like these that make investors glad for dividend stocks. These are the classic defensive investment, stocks that pay out regular, reliable, income streams no matter how the markets are shifting.
Wall Street’s analysts are not shy about recommending strong dividend payers. They like the income stream, they like the cash returns, and so they’ll overlook the lower average share appreciation.
Using TipRanks database, we pinpointed three dividend stocks that have recently gotten the ‘thumbs up’ from their reviewers. They are yielding 5% or better, and their payout ratios, a key metric indicating the ability of the company to maintain the dividend – are below 60%.
Fulton Financial Corporation (FULT)
First on the list is Fulton Financial, a bank holding company with subsidiaries operating 230 bank branches in New Jersey, Pennsylvania, Maryland, Delaware, and Virginia. Fulton boasts a market cap of $1.64 billion, and $23 billion in assets. The company offers commercial banking, consumer lending, and mortgage services, in addition to other financial products for its customers.
Fulton was able to weather the corona crisis in 1H20, keeping EPS above the expectations during the associated financial crisis, and showing stable revenues above $208 million. The company’s Q2 results beat the EPS by an impressive 500%, coming in at 24 cents against a 4-cent forecast.
Stable financial results allowed Fulton to maintain its regular dividend payment during 1H20. The company pays out 13 cents per common share, quarterly, with the last payment going out this past July. At the current rate, the dividend annualizes to 52 cents and yields 5.1%. The payout ratio is 48.60%, showing that the payment is clearly affordable under current earnings.
Raymond James analyst David Long reviewed Fulton, and took especial note of the company’s balance sheet. He wrote, “Fulton raised reserves by 13 bp from 1Q to 1.53% of non-PPP loans, a level we believe is adequate to capture the losses it will experience through the cycle. We believe its manageable at-risk portfolio and strong underwriting history will drive belowpeer losses in coming quarters.” A solid reserve will help to keep the dividend reliable.
The analyst added, "We believe FULT shares should trade at a P/TBV multiple more in line with peers, given its history of strong credit quality, a low exposure of loans most at-risk to the impacts of Covid-19, and solid profitability metrics."
Accordingly, Long rates FULT shares an Outperform (i.e. Buy), and his $12 price target indicates an 14.5% upside potential for the coming year. (To watch Long’s track record, click here)
Overall, Fulton Financial has 3 recent analyst reviews, breaking down to 2 Holds and 1 Buy, making the consensus view on the stock a Moderate Buy. Shares are priced at $10.36, and the $11 average target suggests a modest upside of 6%. (See FULT stock analysis on TipRanks)
Fifth Third Bancorp (FITB)
Next on our list if Fifth Third, one of the largest bank operators east of the Mississippi. The company owns Fifth Third Bank, which operates over 1,100 branches and more than 2,400 ATMs across ten states, mainly in the Ohio Valley. The company also operates in the Southeast. Fifth Third has a market cap near $15 billion.
Sheer size helped insulate Fifth Third from the economic downturn during the corona crisis. The company’s deep pockets allowed it to make a smooth transition to online services, and revenues during the first half slipped only slightly, from $1.86 billion in Q4 to $1.85 billion in Q1 to $1.79 billion in Q2. Earnings have been more volatile, dropping to 13 cents in Q1 but rising to 30 cents per share in Q2. Looking ahead, the third quarter projection is for 48 cents EPS. In a wholly positive note for investors, the company showed a 19% increase in average deposits during the most recent quarter, to $150.6 billion. Average loan balances gained 7%, reaching $118.5 billion.
For investors seeking reliable dividend returns, Fifth Third has a fine reputation, and has maintained it during the coronavirus crisis. The company has raised its dividend at least once per year, and sometimes twice, for the last 12 years. The current payment was made in July, at 27 cents per common share. This gives a full-year payment of $1.08, and a yield of 5.1%. Fifth Third’s reliability and high return are even finer, considering that US Treasury bonds, typically considered the safest interest-bearing investments, are now yielding below 1%.
5-star analyst Bill Carcache of Wolfe Research is optimistic on this stock, writing, “Against a ZIRP backdrop and broadly challenging revenue growth outlook for the banking industry, we view FITB as a relative outperformer as we emerge from the GCC (Global COVID-19 Crisis) and expect an inflection in 2022 EPS and ROTCE that is sharper relative to peers.”
"While we conservatively assume that FITB’s efficiency converges with the industry, we see opportunities for FITB to continue to outperform peers on incremental expense reductions in the coming months," the analyst added.
In line with this comments, Carcache rates FITB as an Outperform (i.e. Buy), and his $25 price target implies an 15% upside for the shares. (To watch Carcache’s track record, click here)
Overall, Fifth Third has a Moderate Buy analyst consensus rating, based on 6 Buys versus 4 Holds set in recent months. The average price target of $23.44 suggests a 10% upside from the current price of $21.41. (See FITB stock analysis on TipRanks)
Manulife Financial Corporation (MFC)
Last but not least is Manulife, the Toronto-based giant of the Canadian insurance industry. The company brings in over C$6 billion in annual core earnings, with C$2 billion of that being new business in 2019. The company boasts 26 million customers globally.
Manulife’s size and strength, and the vital nature of insurance products in uncertain times, helped it through the corona crisis with a minimal hit. Earnings slipped in Q1, but rose to 56 cents (US) per share in Q2 – in line with historical levels in 2018 and 2019. Revenues have risen sequentially from Q4 through Q1 and into Q2. The most recent quarterly revenues came in at C$27 billion (US$20.6 billion.)
The company’s dividend, at 20 cents (US) per share, has been rising consistently (with one small blip in 1Q20 due to corona) for the last three years. The current payment annualizes to 80 cents, and gives a strong yield of 5.5%.
Eight Capital’s Steve Theriault writes of this stock, “We view this as a resilient quarter for Manulife. MFC beat on core and reported EPS driven by policyholder experience and to a lesser extent better than forecast new business gains… We continue to believe that MFC is much better positioned than last cycle when EPS was a net loss for 5 of 8 quarters from Q4/08-Q3/10, and that there is a valuation recovery story here…”
Backing his optimism, Theriault puts a C$25.00 (US$19.04) price target on the stock. This suggests an upside of 29% for the stock this year. (To watch Theriault’s track record, click here)
All in all, the Strong Buy analyst consensus rating on this stock is based on 6 Buys and 2 Holds. The stock is selling for C$19.36 (US$14.74), and the average price target of C$23.74 (US$18.10) indicates room for 22% upside growth. (See Manulife’s 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.