With markets on an upward trend, now would seem an odd time to shift toward dividend stocks. But there are advantages to this traditional defensive play. Dividend stocks will provide some portfolio protection should markets fall again. While they tend to show less share appreciation than the average, they also show less depreciation in down times. And, a reliable dividend always pays out – in good times and bad.
So, let’s look at dividend stocks. The TipRanks Dividend Calendar makes it easy to locate the market’s dividend champs – those stocks with Strong Buy ratings from the analyst community, high upside potential, and reliable, high-yield dividends. That’s a trifecta of perfect signals, highlighting defensive plays that will offer multiple avenues for return on investment.
We’ve started the footwork for you. Here are three stocks showing all three of those positive signals – a Strong Buy consensus rating, an upside in the high teens or better, and dividend yields above 5%. Let’s look at the details, along with commentary from Wall Street’s analysts.
New Residential Investment (NRZ)
We start with a real estate investment trust (REIT), New York-based New Residential. This company holds a widely diversified portfolio, including original loans, residential mortgages, and mortgage servicing rights. The company’s investments are tied mainly to mortgage services, making its business model more complex than most of its peers. Mortgage servicing rights, totaling over $3 billion, make up 54% of the portfolio.
Like much of the market, New Residential saw significant pressures in 1H20, stemming from the COVID-19 pandemic and the economic dislocations caused by the containment measures. The company’s earnings slipped in the first and second quarters, and revenues remain under pressure. In addition, the stock’s share price slid in February/March, and has not yet regained pre-crisis levels. All of this has impacted the dividend, in some ways good and other ways bad.
First, the bad news. NRZ slashed its dividend in the first quarter, and the payment remains low. Q1 saw a payment of 5 cents per common share, down from the historical 50 cents. In Q2, the company increased the dividend payment to 10 cents, in response to improving cash flow.
Now the good news. NRZ reported over $1 billion in available cash in the second quarter, allowing management to raise the dividend. And with share prices low, the 10-cent dividend payment gives a yield of 5.18%. This compares favorably to the 2% average yield found among S&P-listed companies.
Covering New Residential for investment firm Raymond James, 5-star analyst Stephen Laws maintained his Buy rating and raised his price target to $10.50. His new target implies a robust upside of 33%. (To watch Laws’ track record, click here)
Backing his stance, Laws writes, “We expect strong origination volumes and attractive gain on sale margins to drive near-term results… Book value was $10.77 per share on June 30, up slightly from $10.71 per share on March 31... Given the strong mortgage banking outlook and improved portfolio financing, we believe a multiple in line with book value is appropriate.”
The Strong Buy analyst consensus rating on NRZ is based on 7 reviews, and it is unanimous – all of the recent reviews are Buys. Shares are selling for $7.88 and the average price target of $10.07 suggests it has a one-year upside potential of 28%. (See NRZ stock analysis on TipRanks)
National Retail Properties (NNN)
Next on our list, National Retail Properties, is another REIT, but with a twist. National invests in freestanding retail units, with a portfolio containing more than 3,100 properties across 48 states (only Hawaii and Vermont are excluded). The company’s leading tenant, making up 5% of the portfolio, is 7-11; the second largest tenant is Mister Car Wash. National Retail has market cap of $6 billion, and boasts that it has raised the dividend payment every year for 31 years.
So, let’s look at the current dividend. NNN currently pays out 52 cents per common share, and even in the coronavirus crisis it held that payment steady. The company’s most recent dividend declaration was in July; the payment was increased from the previous level of 51.5 cents, and marked the start of the 31st year with a dividend increase. The 52-cent payment annualizes to $2.08 per share, and gives an impressive yield of 5.75%.
The reliable dividend is supported by positive earnings. In Q1, when most companies saw sharp declines due to the health and economic crises, NNN’s EPS rose to 71 cents. Q2 saw an earnings contraction, to 65 cents, but that is still more than enough to cover the dividend without dipping into the company’s cash reserves. The dividend payout ratio is 80%, indicating both the company’s commitment to paying out earnings as dividends – and its ability to afford the payment.
B. Riley FBR analyst Craig Kucera likes what he sees in National Retail Properties, especially the company’s ability to collect rents and maintain liquidity. He writes, “NNN boosted 2Q20 collections to 69% (with 21% deferred), while July's collections improved further to 84% (and 6% deferred)… With 90% of tenant rent collection issues worked out and expected to be recovered by the end of 2021, $225M of cash on hand and $900M of LOC availability, and a more encapsulated cash flow/NAV downside than in early 2Q20, we believe investors should take advantage of NNN's discounted valuation to peers.”
In line with his comments, Kucera maintains his Buy rating. His $45 price target suggests a one-year upside for the stock of 27%. (To watch Kucera’s track record, click here)
National Retail Properties has 5 recent analyst reviews, split 4 to 1 between Buy and Hold, giving the stock a Strong Buy analyst consensus rating. The stock’s $41 average price target implies an 18% upside potential from the current $34.68 trading price. (See NNN stock analysis on TipRanks)
TCF Financial Corporation (TCF)
The third stock on our list is a holding company, with multiple bank subsidiaries in the financial sector. The most recognizable subsidiary, TCF Bank, is based in Detroit, Michigan, and has 476 branches in Michigan, Ohio, Illinois, Wisconsin, Minnesota, South Dakota, and Colorado. TCF Financial boasts a market cap over $4 billion.
The social lockdown policies put in place to fight the coronavirus hurt TCF, mainly by reducing traffic at the bank branches. EPS and revenue both fell in 1H20, although both remained strongly positive. The steepest declines were in the first quarter; Q2 saw sequential EPS gains, and the outlook for Q3 is for further EPS gains.
During the half, TCF maintained its dividend payment, keeping up the 35-cent payment per common share. The current declaration, made earlier this month for payment on September 1, marks the fifth quarter in a row with the dividend at this level. With an annualized payment of $1.40, the dividend is yielding 5.2%.
JPMorgan’s Steven Alexopolous is covering TCF shares, and writes, “With TCF well-positioned for a strong 4Q20 and 2021, we continue to expect that a Midwest banking powerhouse has now been created, with the company standing out not only from a growth perspective, but [also] from a credit risk perspective.”
Alexopolous’s Buy rating is bolstered by a $31 price target, implying a 12-month growth potential of 15%. At that, his outlook is somewhat conservative – the average price target on TCF is $36, suggesting the stock has room for 34% growth in the coming year. The shares are currently trading for $26.79. TCF has a Strong Buy analyst consensus rating, based on 4 Buys and 1 Hold set in recent weeks. (See TCF stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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