3 ‘Strong Buy’ stocks with a dividend yield of over 7%
It’s been up and down for the markets since the end of September. Both the NASDAQ and S&P 500 trade within 3% of their recent record highs after taking daily fluctuations into account. This is a clear sign of bullish sentiment among investors. And that bullish sentiment finds fertile ground with Wall Street equity analysts who don’t hesitate to make buy-side calls. There are some signs that analysts are hedging their bets as several of the recent buy reviews are also offering strong dividend yields. Return-minded investors can find some level of security in high-yield stocks. The benefit of such a fundamentally defensive strategy is obvious: stocks that are rising now will bring the immediate gains of stock appreciation, while strong dividends provide a steady stream of income regardless of market conditions. With the data available in the TipRanks database, we can we pulled up three high-yielding stocks – from 7% to 9%. Even better, these stocks are viewed as strong buying by Wall Street analysts. Let’s find out why. Energy Transfer LP (ET) First up is Energy Transfer, a major name in the North American hydrocarbon midstream sector. The company’s main network spans 38 states and connects three major oil and gas producing regions – the Midwest Appalachian and Texas-Oklahoma-Louisiana regions and North Dakota. Energy Transfer has smaller assets in the Colorado Rockies, Florida, and northern Alberta. These assets include pipelines, terminals and storage tanks for natural gas and crude oil. The value of ET’s services is determined by the company’s market cap of $ 18 billion and annual revenue of $ 54 billion. That figure, as well as the impact of the 2020 health and economic crisis, also emerges from the company’s most recent release of its third quarter results. On the negative side, sales fell by 26% and earnings per share by 18% compared to the same quarter of the previous year. In absolute terms, earnings were $ 9.96 million, while earnings were 30 cents per share. Both numbers far exceeded the forecasts. Surpassing the forecasts was a positive note. Second, the company reported cost savings of $ 400 million year-to-date from initiatives to control and streamline spending. Total long-term debt was stable at $ 54 million. In an announcement in late October, Energy Transfer declared its dividend for the third quarter at 15.25 cents per common share. This was a 50% reduction from previous payments and was implemented for a number of reasons. The main reason for this is to release cash for debt reduction. The dividend cut also keeps the dividend yield in line with historical values (with stocks this year, the yield has been artificially increased) and affordable at current income levels. The new dividend payment amounts to 61 cents per common share and – even after the reduction – results in a high return of 8.8%. Analyst Justin Jenkins, who covered Raymond James’ stock, commented, “We still see ET’s world-class integrated midstream footprint as a big positive, but the risks are and will remain high. Ultimately, we believe that core business and long-term free cash flow generation (which will improve dramatically in 2021) will help ET differentiate itself in the midstream space. ET’s large valuation discount over competitors is unlikely to diminish entirely in the short term. We see the risk / reward as positive in most scenarios. “Consistent with these comments, Jenkins rates ET a strong buy and its target price of $ 9 suggests it has room for 26% growth over the coming year. (To see Jenkins’ track record, click here.) Wall Street appears to be largely in line with Jenkins as ET stocks maintain a strong buy rating from analyst consensus. There were 8 recent reviews including 7 purchases and a single hold. The stock’s average target price of $ 9.29 is slightly more bullish than Raymond James’ position, implying an upside potential of ~ 31% from the trading price of $ 7.09. (See ET stock analysis on TipRanks) Omega Healthcare (OHI) REITs are often known for high-yield dividends, as tax regulations require these companies to return a minimum percentage of profits to investors. Omega Healthcare, a real estate investment trust, is no different from its peers in this regard, but it does offer investors a twist. The company’s portfolio consists of qualified care facilities and retirement homes with a breakdown of 83% to 17%. The portfolio is valued at more than $ 10 billion. It has 957 facilities in 40 states and the UK. The bottom line is that Omega reported a drop in sales in the third quarter. The reported $ 119 million decreased 53% sequentially and 16% year over year. That was the bad news. Adjusted funds from operations (FFO), a common metric used to assess REIT income levels, topped forecast by 5% and came in at 82 cents per share. In other positive notes this year, Omega reported that 99% of rents due in each quarter of 2020 were collected, and last October it successfully issued $ 700 million of $ 700 million in senior debt at 3.375% due in 2031. The company intends to use the funds Increased to firstly repay existing debt and secondly to cover general business operations. Omega currently pays out a dividend of 67 cents per common share and has held that payment constant for nearly three years. The company has a 6 year history of reliable dividend payments. The annualized payment is $ 2.68 per common share, which equates to a 7.1% return. The company’s performance, including its solid dividend, led JMP analyst Aaron Hecht to rate OHI as an outperform (i.e. buy). His target price of $ 43 shows an upward trend of 14% over the next 12 months. (To see Hecht’s track record, click here.) Hecht confirms his stance: “We believe that deliveries of COVID-19 vaccines will arrive within the next two weeks and that qualified care facility residents will be prioritized based on their vulnerability. We see this as a huge benefit for OHI as the largest owner of qualified care facilities in the US. While OHI’s tenants have generally performed well during the pandemic, a surge in demand would be a derisking event … Given the tailwind in demand, we believe OHI deserves a slight premium on its three-year prepandemic awards. We are the buyers of the stock… ”In the meantime, OHI has a strong buy rating from analyst consensus based on 8 ratings, limited to 6 buys and 2 holds. Omega’s share price is up 28% since the first week of November following the third quarter earnings. This has pushed the trading price of the stock slightly above the average price target of $ 36.88 from the current $ 37.69. (See OHI stock analysis on TipRanks) Owl Rock Capital Corporation (ORCC) Last but not least, Owl Rock Capital, a specialty finance firm based in New York. Owl Rock operates in the midsize financial sector, providing midsize businesses with access to capital to make acquisitions, fund operations, and perform recapitalizations. The company’s portfolio has total assets of $ 10.2 billion, 97% of which are senior-secured assets. Owl Rock is currently invested in 110 companies. Owl Rock’s third quarter earnings were slightly below expectations. The EPS was 33 cents per share, which corresponds to a decrease of 3% compared to the previous quarter and misses the estimates by 2 cents. Net asset value per share increased 1% quarter over quarter from $ 14.52 in late June to $ 14.67 in late September. To support liquidity, Owl Rock assessed a public offering of $ 1 billion in 3.4% bonds in the first week of December. The issue matures in 2026 and provides funds to repay existing debt in the revolving credit facility and to fund general operations. Owl Creek also confirmed in the first week of this month that there are talks about the acquisition of Dyal Capital. The move would combine Owl Creek’s direct lending platform with Dyal’s access to capital solutions. Owl Creek has a regular dividend payment of 31 cents per quarter, which has been supplemented by a series of 6 special dividend payments of 8 cents since May 2019. Calculating the return using the regular dividend results in a return of 9.6% based on an annual rate of $ 1.24 per common share. For comparison: the average dividend among the companies listed on the S&P is 2%. The review here was written by Devin Ryan, 5-star analyst at JMP Securities. Focusing on Dyal Capital’s announcement, Ryan commented, “While it is important to distinguish that this merger is between the management companies and not directly with the BDC and we do not ultimately expect any major changes, we believe a transaction will be a positive outcome might for ORCC shareholders over time. “” We continue to see the opportunity in ORCC stocks as attractive due to: 1) strong credit performance and expectations; 2) a well-positioned balance sheet; 3) the profit scale increases if leverage moves to 1.0 times the target by 2H21; and 4) an increase in the portfolio’s return profile with a higher mix of Unitranche loans, “concluded the analyst. To this end, Ryan outperformed Owl Creek (ie buy), indicating his target price of $ 14.50 Up to 13% in the coming year. (To see Ryan’s track record, click here) Owl Creek’s consensus rating for strong buy is based on 6 ratings, showing a 5: 1 split between buy and hold, with ORCC trading at 12.78 USD and an average of USD 13.90. Target price implies an uptrend of ~ 9%. (See ORCC stock analysis on TipRanks.) To find good ideas for trading dividend stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy , a newly introduced tool that brings together all of TipRanks’ stock insights Disclaimer: The opinions expressed in this article are those of the featured analysts only. The content is for informational purposes only purposes. It is very important that you do your own analysis before making any investment.