2 “strong buy” dividend stocks with a yield of at least 8%
2022 is here and analysts say we are facing a bumpy ride – at least at the beginning. In a recent Bankrate poll, 70% of the top experts surveyed said they believe a correction to the S&P 500 is in the pipeline in the next 6 months, with a decline of more than 10% expected.
While various reasons were given for the expected pullback, the recurring themes were rising interest rates and overheated stock valuations. The decline will end the almost continuous run of the bull market since the pandemic-induced lows in March 2020. On the flip side, the good news is that all participants think the S&P will be back on the winning streak by the end of 2022, with the index expected to show 8.% growth for the year, just below the historical average . .
Still, this type of short-term warning signals that it is time for a defensive game, and that, of course, will lead us to dividend stocks. These are the stocks that deliver stable returns regardless of daily market fluctuations and protect the portfolio from incoming volatility.
With that in mind, we delved into the TipRanks database and focused on two names that correspond to a particular profile; a strong buy rating from Wall Street analysts and an above-market dividend yield of at least 8%. Let’s take a closer look.
Corporation loan (RC)
First of all, we have Ready Capital, a real estate investment trust (REIT). REITs are used to acquire, own, lease, and manage a wide variety of real estate, including residential, commercial, and industrial property. Companies generate their income from renting and selling activities and, due to tax regulations, are obliged to return a certain and high percentage of the profits directly to investors. Dividends are a common form of compliance.
Ready Capital lives in the commercial real estate segment, where it focuses more on commercial real estate loans than physical real estate. Ready will acquire such loans, but will also create, finance, and manage low-to-mid-balance commercial real estate loans. The bulk of Ready’s business is funding such small business and apartment building loans.
Over the course of 2021, the business has seen steady growth, both up and down. In its most recent quarterly report for the third quarter, the company reported sales of $ 187 million, the best circulation in two years. Earnings per share were 64 cents, the highest since the second quarter of 20 and an increase of 15% over the second quarter.
EPS is an important metric for dividend investors as it was more than high enough to cover the 42 cents common stock dividend. The dividend has been held at this level for the past three quarters following the volatility during the pandemic crisis. With an annualized payout of $ 1.66, the dividend is an impressive 10.7%.
Matt Howlett, an analyst who oversees Ready Capital for B. Riley, sees him in a strong position for further earnings over the next year.
“We expect the company to increase its quarterly dividend to $ 0.45 / share by mid-2022. While a COVID resurgence remains a potential surplus in the CRE market, please note that RC’s portfolio performed remarkably well ($ 0 in losses) during the first wave of the pandemic. Additionally, the model is compensated because in a repeat scenario in 2020 its retail business and SBA platform (including PPP) would likely outperform and differentiate itself from its peers. On the flip side, with 70% of its floating rate loans combined with 70% of its remaining fixed income products, RC is well positioned for rising interest rates, ”Howlett said.
Howlett’s comments support his buy rating for stocks, while his target price of $ 18 implies upside potential of 15% for the coming year. Based on the current dividend yield and the expected price increase, the share has a potential total return profile of around 26%. (To see Howlett’s track record, Click here)
Overall, the purchase rating with strong consensus is unanimous and is based on 5 positive ratings that have formed in the last few weeks. RC stocks trade at $ 15.63, and their average price target of $ 17.80 suggests an increase of around 14% through the end of 2022. (See analysis of RC stocks on TipRanks)
Kimbell Royalty Partner (KRP)
The second stock we look at, Kimbell Royalty, has found a foothold in both real estate and energy. Kimbell acquires and holds land mining rights in areas of high oil production in the United States and levies royalties on oil and gas products from those countries. The company owns more than 13 million acres in 28 states in areas as important as the Permian Basin in Texas, the Bakken Fields in Montana and the Appalachian Gas Districts in Pennsylvania.
More specifically, Kimbell’s land holdings are home to more than 121,000 active wells. Of these, more than 46,000 are in the Permian Formations of Texas. Although oil and gas drilling slowed under the Biden administration, higher prices partially offset it, and Kimbell has seen rising revenues this year. Revenues for the third quarter reached $ 49.3 million and included record revenues from oil and gas exploration. That is 23% more than in the previous quarter. In the end, net income reached $ 7.5 million, a sequential increase of 101%.
When we turn to the dividend, we will quickly focus on “cash available for distribution,” the key metric that supports the payment of the dividend. Kimbell has also set a record here with 50 cents per share. As a result, the ordinary share dividend of 37 cents could be increased slightly, which corresponds to an increase of 19% compared to the payment in the second quarter. The dividend payout is 8.4%, far higher than the average dividend of S&P listed companies and much higher than the yields on current government bonds. With that in mind, it’s no surprise that KRP stock rose an impressive 90% in 2021.
While Wells Fargo analyst Joseph McKay is cautious about mining, he’s optimistic about Kimbell. Commenting on the company’s current position, McKay writes, “We think this is a good entry point for a company that will pay off its preferred stock holdings in January 2022, which will add about $ 2 million in cash flow annually and move the company to the deleveraging milestone has exceeded. Additionally, KRP’s distributions are expected to be treated as a capital decrease beyond 2022 for tax purposes, an advantage over its competitors, especially as commodity prices continue to rise and commodity prices continue to rise. Tax protection periods are becoming shorter.
Based on these comments, the analyst assigns KRP shares an overweight (ie buy) rating and a price target of 18 US dollars. If the target is met, the stock could generate returns of around 32% over the next 12 months. (To see McKay’s background, Click here)
Other analysts are even more optimistic. Of the five investment banks that have rated KRP over the past three months, all five agree that the stock is a “buy” – and on average, they believe it is worth $ 20.40 per share – 50% above the current price. (See analysis of Kimbell shares on TipRanks)
To find great ideas for dividend stocks that trade at attractive valuations, visit TipRanks Best Stocks to Buy, a recently launched tool that brings together all of the information you need about TipRanks stocks.
warning: The opinions expressed in this article are solely those of the presented analysts. The content is provided for informational purposes only. It is very important that you do your own analysis before making any investment.