3 Big Dividend Stocks Yielding at Least 10%; Maxim Says ‘Buy’

Does history repeat? Many of us, no doubt, remember the crash of the doc.com bubble back in 2000, and at least one analyst sees that pattern repeating before our eyes. Read More... The post 3 Big Dividend Stocks Yielding at Least 10%; Maxim Says ‘Buy’ appeared first on TipRanks Financial Blog.

3 Big Dividend Stocks Yielding at Least 10%; Maxim Says ‘Buy’

Does history repeat? Many of us, no doubt, remember the crash of the doc.com bubble back in 2000, and at least one analyst sees that pattern repeating before our eyes. Will Meade, who built his reputation in stock analysis with Goldman Sachs, believes that the current rally is only temporary, and that the markets are likely to fall again in 2H20 – by as much as 40%.

Meade points that, like in 2000, we have the risk and uncertainty of a Presidential election coming up, and then adds, “The NASDAQ in 2000 did a similar bear market bounce as stocks this year — dropped 40%, then bounced 42% off the bottom retracing 61.8% of its drop. It stalled then fell 43%, making a new low four months later.” If Meade is right, then the true market bottom is due to hit us in late July or early September.

The analyst is not all doom and gloom, however. While he is predicting bad news and tough times for the stock markets, he also points out that investors can act now to buffer their personal positions. His advice: move to liquid assets and build a cash savings buffer.

Shoring up the savings account is only part of a strong defensive strategy. Investors can also shift their portfolio toward dividend stocks, relying on the steady income from the dividend payments to compensate for lower share price appreciation.

We’ve used TipRanks database to find three high-yielding stocks that offer reliable payments – and all three have gotten the thumbs up from Maxim analyst Michael Diana.

Ellington Financial, Inc. (EFC)

We’ll start in the financial sector, with a small-cap company in the mortgage finance niche. Ellington operates as an investor, putting money into consumer loans, equity investments, mortgage backed securities, and both residential and commercial mortgages. It’s a standard portfolio for a mortgage-focused real estate investment trust.

As an REIT, Ellington naturally offers a high dividend. REITs are required to a return a high percentage of profits to investors, and dividends are a sure way to comply with that regulatory provision. In response to the COVID-19 epidemic, and consequent economic damage, Ellington had to reduce its monthly payment starting with the April 29 payout. However, the company is maintaining a 54% payout ratio – returning more than half of earnings to investors. The 8-cent per share payment annualized to 96 cents, and offers investors a yield of 10%.

Right now, the Fed’s key interest rate is down to the 0 to 25 basis point range, and Treasury bonds are yielding less than 1%. Even among dividend stocks, the average yield is just 2%. So, EFC’s 10% dividend yield is a fantastic return. Looking ahead, the company is expected to show 40 cents per share in earnings for Q1, more than enough to maintain the new monthly dividend.

Maxim’s Michael Diana has tagged EFC as a ‘top pick,’ particularly noting the company’s strong management team: "Managing an mREIT even in 'normal' times is a difficult task, as the manager must balance leverage, prepayment protection, interest income, hedging, and diversity of financing sources to position the investment portfolio to withstand unexpected shocks without giving up too much income. When an unexpected shock does occur, crisis management skills are required to dynamically hedge and reposition the portfolio. We have followed EFC longer than any other analyst and, in our view, EFC management possesses all of these skills."

Diana puts an $18 price target on EFC shares, implying a whooping 82% upside potential that fully supports his Buy rating. (To watch Diana’s track record, )

Wall Street agrees with Diana’s assessment here. The analyst consensus on this stock is a Strong Buy, and it is unanimous, based on 4 Buy reviews set in recent weeks. Shares are selling at a comfortable entry point, just $9.87, and the average price target of $14.38 suggests room for a robust 46% upside growth this year. (See Ellington stock analysis on TipRanks)

AGNC Investment (AGNC)

Based in the Maryland suburbs of Washington DC, AGNC is another REIT. The company’s portfolio is centered on residential mortgage-backed securities, but with a twist. Most of AGNC’s portfolio investments are guaranteed by the US government. The company’s portfolio includes $70.7 billion in such agency-supported securities, out of a total value of $93 billion.

AGNC reported fiscal Q1 earnings at the end of April, and beat the forecast on EPS. Per-share earnings came in at 57 cents, based on $65 million in net interest income. The income interest figure is down significantly from the previous quarter, reflecting the economic troubles caused by the COVID-19 pandemic. On a positive note, AGNC’s cash holdings increased 55% in the first quarter, reaching $1.29 billion by March 31.

A solid cash position and safe guarantees on the portfolio make AGNC an attractive investment, and the reliable monthly dividend adds icing to that cake. Like EFC above, AGNC lowered its monthly payment in Q1. The new payment is 12 cents per share per month, which annualized to $1.44 and gives a strong yield of 11.5%. At 63.2%, the payout ratio shows that the dividend is easily sustainable at current income levels – and has room to raised back to previous rates when conditions warrant.

Diana is bullish on this stock and upgrades his rating from Hold to Buy. The analyst noted, "While turmoil in the mortgage markets at the end of March resulted in losses and lower book values for all mREITs, AGNC was able to meet all of its margin calls and, importantly, take relatively fewer realized losses, and therefore retain more earnings power post-turmoil. This is why we believe the dividend, currently yielding 11.7% (vs. ~5% for peers) is safe."

Along with the Buy rating, Diana gives AGNC a $15 price target, indicating a potential for 20% upside appreciation in the coming 12 months.

The analysts are somewhat cautious on AGNC, a sentiment caught by the 8 to 3 split between Buy and Hold reviews. The consensus rating on the stock remains a Moderate Buy, while the $14.53 average price target implies a 14% upside potential. (See AGNC stock analysis on TipRanks)

Manhattan Bridge Capital (LOAN)

Last on our list is a NYC-based micro-cap lending company, Manhattan Bridge Capital. The company offers short-term financing and collateralized loans. Typical collateral includes real estate and tradeable stock, and the loans are usually used as first mortgages. LOAN originates, services, and manages its loan portfolio, and most of its customers are professional real estate investors and developers.

The coronavirus epidemic has hurt real estate development and construction – exactly the type of projects that LOAN finances – in general, but that hit has been especially hard in New York City. At both the State and City levels, lockdown restrictions have been severe, and the mortgage loan environment is described by Diana as ‘challenging.’

On a positive note, LOAN has covered its quarterly dividend payment, despite lower Q1 earnings. At 11 cents per share, the quarterly dividend annualized to 44 cents and offers investors a yield of 10.8%. Again, this compares favorably to most investment return yields out there.

The high dividend yield alone makes this an attractive investment opportunity, but Diana also points out the stability of Manhattan Bridge’s portfolio, writing, “LOAN has never had to foreclose on a property and has never experienced a loan default.”

With the stable portfolio in mind, Diana goes on to say, “We believe LOAN deserves to trade at a P/E premium to [peers] because of its: 1) lower leverage; 2) higher profitability; 3) better credit quality; 4) lower earnings volatility; and 5) dividend growth (which is possible in 2021, in our view, if the environment improves and stabilizes).”

Diana’s $6 price target on the stock implies a healthy 46% one-year upside potential, and fully backs his Buy rating on the stock. Diana’s is the only recent Wall Street review of this stock – but should his thesis prove correct, expect LOAN to attract both stock analysts and investors in the near future. It offers a low cost of entry with a high potential return – an unbeatable combination. (See LOAN 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.

The post 3 Big Dividend Stocks Yielding at Least 10%; Maxim Says ‘Buy’ appeared first on TipRanks Financial Blog.

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SteelPath May MLP update and news

April MLP performance appeared to reflect improving sentiment as COVID-19 containment efforts are set to ease in many locations. Furthermore, midstream investor anxieties may have been calmed by efforts to […]

SteelPath May MLP update and news

April MLP performance appeared to reflect improving sentiment as COVID-19 containment efforts are set to ease in many locations. Furthermore, midstream investor anxieties may have been calmed by efforts to improve free cash flow generation through capital spending cuts and, for some, reductions to distribution payouts.

MLP Market Overview

Midstream MLPs, as measured by the Alerian MLP Index (AMZ), ended April up 48.0% on a price basis and up 49.5% once distributions were considered. The AMZ results outperformed the S&P 500 Index’s 12.8% total return for the month. The best performing midstream subsector for April was the Gathering and Processing group, while the Compression subsector underperformed, on average.

For the year through April, the AMZ is down 38.1% on a price basis, resulting in a 36.0% total return loss. This trails the S&P 500 Index’s 9.9% and 9.3% price and total return losses, respectively. The Propane group has produced the best average total returns year-to-date, while the Compression subsector has lagged.

MLP yield spreads, as measured by the AMZ yield relative to the 10-Year U.S. Treasury Bond, narrowed by 719 basis points (bps) over the month, exiting the period at 1,157 bps. This compares to the trailing five-year average spread of 609 bps and the average spread since 2000 of approximately 397 bps. The AMZ indicated distribution yield at month-end was 12.2%.

Midstream MLPs and affiliates raised no new marketed equity (common or preferred, excluding at-the-market programs) and $1.7 billion of debt during the month. MLPs and affiliates announced no new asset acquisitions over the month.

Spot West Texas Intermediate (“WTI”) crude oil exited the month at $18.84 per barrel, down 8.0% over the period and 70.5% lower year-over-year. Spot natural gas prices ended April at $1.66 per million British thermal units (MMbtu), down 2.9% over the month and 35.9% lower than April 2019. Natural gas liquids (NGL) pricing at Mont Belvieu exited the month at $11.30 per barrel, 17.1% higher than the end of March and 54.7% lower than the year-ago period.

News

First quarter earnings season underway. First quarter reporting season began in April. Through month-end, 48 midstream entities had announced distributions for the quarter, including six distribution increases, 15 reductions, and 27 distributions that were unchanged from the previous quarter. Over the same time, six sector participants had reported first quarter financial results. Operating performance has been, on average, in-line with EBITDA expectations – Earnings Before Interest, Taxes, Depreciation and Amortization – coming in 0.3% higher than consensus estimates but 2.1% lower than the preceding quarter.

Chart of the month

Despite the unprecedented combination of a significant and abrupt crude oil demand destruction, due to a rapid expansion of COVID-19 containment efforts globally, and the threat of surging crude oil supply, due to the unanticipated emergence of a Saudi-Russian crude oil market share battle, total midstream EBITDA estimates, according to analysts at Wells Fargo, for 2020 and 2021 have declined by only 7% and 11%, respectively, since the beginning of 2020. Perhaps more importantly, estimated industry free cash flow, defined as distributable cash flow less growth capital expenditures and acquisitions, has increased by 15% and 9%, respectively, as the industry’s capital spending over 2020 and 2021 is now expected to be $15 billion less than Wells Fargo’s expectations coming into the year.

Figure 1: Midstream estimate changes since year-end 2019

Sources: Wells Fargo Securities, LLC and Invesco SteelPath MLP calculations as of April 30, 2020. FCF is Free Cash Flow and CapEx is Capital Expenditure

All data sourced from Bloomberg L.P. as of April 30, 2020 unless otherwise stated

Important Information

Blog Header Image: Maryviolet/ iStock

Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their advisors for a prospectus/summary prospectus or visit invesco.com.

The opinions referenced above are those of the author as of May 7, 2020. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.

Energy infrastructure MLPs are subject to a variety of industry specific risk factors that may adversely affect their business or operations, including those due to commodity production, volumes, commodity prices, weather conditions, terrorist attacks, etc. They are also subject to significant federal, state and local government regulation.

The mention of specific companies, industries, sectors, or issuers does not constitute a recommendation by Invesco Distributors, Inc.

The S&P 500 Index is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States.

The Alerian MLP Index is a float-adjusted, capitalization-weighted index measuring master limited partnerships, whose constituents represent approximately 85% of total float-adjusted market capitalization. The S&P 500 Index is a broad-based measure of domestic stock market performance. Indices are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. An Investment cannot be made into an index. Past performance does not guarantee future results.

Investing in MLPs involves additional risks as compared to the risks of investing in common stock, including risks related to cash flow, dilution and voting rights. Each fund’s investments are concentrated in the energy infrastructure industry with an emphasis on securities issued by MLPs, which may increase volatility. Energy infrastructure companies are subject to risks specific to the industry such as fluctuations in commodity prices, reduced volumes of natural gas or other energy commodities, environmental hazards, changes in the macroeconomic or the regulatory environment or extreme weather. MLPs may trade less frequently than larger companies due to their smaller capitalizations which may result in erratic price movement or difficulty in buying or selling. Additional management fees and other expenses are associated with investing in MLP funds. Diversification does not guarantee profit or protect against loss. The opinions expressed are those of Invesco SteelPath MLP, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

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