Are you aiming for at least a 7% dividend yield? Analysts recommend buying 2 dividend stocks
Inflation, interest rates and recession are the bugbears of investing, and they’ve been peering over our shoulders for the past year. We all know the story by now, inflation is still high at 6.4%, the Federal Reserve is raising interest rates to tackle high prices and that could plunge the economy into recession. At a time like this, investors are showing a growing interest in strong defensive portfolio moves.
It’s a mindset that naturally leads us to dividend stocks. These are the traditional defensive investing strategies that provide shareholders with steady payouts that guarantee a stream of income whether the markets are rising or falling. The best Dividend Stocks combines a high dividend yield with solid upside potential, offering investors the best of both worlds when it comes to returns.
Wall Street analysts have been looking for just such investments and have singled out several. Using the TipRanks database, we pulled up the details of two of these stocks that offer dividend yields of at least 7%. That alone is more than enough to ensure a positive real return, but each of these stocks also carries double-digit upside potential. Let’s take a closer look.
EOG resources (EOG)
We’ll start with EOG Resources, a major player in the North American hydrocarbon exploration and production industry — which is just a fancy way of saying that EOG is a big-name oil and gas producer. The company has a market cap of $70 billion and operates in some of the continent’s richest oil and gas regions. EOG is particularly active in Texas, New Mexico, Oklahoma and Louisiana, in the Eagle Ford and Anadarko formations, and in areas of the North Plains such as the Williston and Powder River basins.
EOG will release its next Q4 ’22 financial results later this week, but we can look back at Q3 to get an idea of where the company stands. This latest release showed revenue of $7.59 billion, up 59% year over year, and earnings of $2.18 billion on non-GAAP measures. Net income per share was adjusted net income of $3.71. While that EPS narrowly missed guidance of $3.75, it was well above the $2.16 reported in the year-ago quarter.
Those numbers supported both an increase in the regular quarterly dividend to $0.825 from $0.75 and a $1.5 special dividend. Combined, the annual dividend of $2,325 is $9.3 and yields 7.8%. The company has been paying regular special dividends since 2021 as part of a stated commitment to return capital to shareholders. Over the past three quarters, EOG has made three special dividend payments ranging from $1.5 to $1.80 per share. However, it’s important to note that special dividends do not oblige the company to make similar payments in the future.
Covering this stock for Wells Fargo, 5-Star Analyst Roger Read sees the dividend here as a key concern for investors. He writes, “EOG is a top US E&P stock given its track record of generating cash yields and paying dividends. In early 2022, management committed to returning at least 60% of annual FCF to shareholders via base and special dividends. The base dividend is a key component of this framework, while management has historically used special dividends to return capital.”
To quantify this for investors, Read ranks EOG stock as Overweight (ie, Buy) while setting a price target of $167, suggesting a strong 40% upside potential over the coming months. (To see Read’s track record, Click here)
Read is optimistic, but he’s hardly an outlier on EOG. The stock has 13 recent analyst ratings and these are split into 9 buy and 4 hold, giving the stock a moderate buy consensus rating. Shares are selling for $119.23 and the average price target of $158.67 implies a 33% one-year upside potential. (See EOG Stock Forecast)
MFA Financial (MFA)
From the energy industry we turn to a Real Estate Investment Trust (REIT). These companies, which buy, own, operate, and lease a wide range of real estate and mortgage investments, are known as consistent dividend champions. MFA Financial primarily works with home loans, residential and commercial real estate securities and MSR-related assets. The company’s portfolio is valued at approximately $8.2 billion and has gained by repaying loans.
The company is set to report fourth quarter ’22 results this week and in the meantime, let’s look back at the third quarter to set the stage. At first glance, the numbers weren’t pretty.
In the third quarter of last year, MFA reported a net loss of $55 million. This compared extremely unfavorably to the profit of $132 million reported a year earlier. At the same time, the non-GAAP measure of distributable earnings was positive at $28.2 million, or 28 cents per common share. Year over year, however, distributable earnings fell 51%.
In response, MFA cut its dividend payment. The move came in the fourth quarter and reduced the payment from 44 to 35 cents per share. But even after the dividend cut, it’s still yielding 13.33% for shareholders, which is strong by any measure.
Against this mixed backdrop, Credit Suisse analyst Douglas Harter, a 5-star analyst who ranks in the top 2% of equity professionals on the Street, believes now is the time to pull the trigger.
Drawn by MFA’s “risk-adjusted return potential given current valuation,” Harter continues to write about the stock: “Our baseline scenario is that spreads remain relatively flat throughout 2023. The credit-oriented mREITs have the potential to recover significant amounts of the unrealized book value losses from 2022 due to the discount to face value of the current book value of loans. While the slowdown in the housing market and economy will result in some degree of credit losses, most of the discount is related to interest rates. In the next few years, as the loans are repaid, this discount should be reversed and the book value will increase higher.”
Consistent with this stance, Harter rates MFA as Outperform (ie, Buy) with a price target of $12.50. At current levels, its target implies a 1-year upside potential of 19%. (To see Harter’s track record, Click here)
Although this stock only has 3 recent analyst ratings, they are falling 2 to 1 in favor of Buy over Hold for a moderate Buy consensus rating. Shares are priced at $10.50, with an average price target of $12.33 suggesting a ~17% 12-month gain. (See MFA Stock Forecast)
To find great stock trading ideas at attractive valuations visit TipRanks’ The best stocks to buya tool that brings together all of TipRanks’ stock insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important that you do your own analysis before making any investment.
https://finance.yahoo.com/news/seeking-least-7-dividend-yield-015924564.html Are you aiming for at least a 7% dividend yield? Analysts recommend buying 2 dividend stocks