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Inflation has dominated the headlines for the past two years as prices have risen at their fastest pace since the late 1970s. In June last year, inflation peaked at a 40-year high of 9.1%. However, the most recent data from last June showed a somewhat encouraging year-over-year figure of just 3%. Markets rose on the news, reflecting a sense of relief and optimism that the worst is over.
With this boost to overall economic sentiment, investors now have a favorable backdrop to explore new stock selections that could generate additional income in 2023 and beyond. One of the most effective ways to achieve this is through high-yield dividend stocks, especially those with strong growth potential.
With this in mind, we used the TipRanks database to chart two stocks that, according to Wall Street analysts, could generate a combination of significant capital gains and dividend income, making them a potential double-fisted payday for investors.
Ternium SA (TX)
We start south of the border, where Ternium is the largest producer of flat steel in Latin America and one of the largest steel companies in the Western Hemisphere. The company has production facilities in Mexico, Argentina, Brazil and Colombia, as well as in Central America and the southern United States. The largest buyers of Ternium’s products are Mexico, followed by Argentina and the US.
The company’s products include a range of steels in many different grades. Especially for the construction industry, Ternium produces hot-rolled and cold-rolled steel, steel tubes, molded steel, galvanized sheets, tinplate and various prefab items. In addition to steel production, Ternium is active in iron ore mining in Mexico and in the production of coke and slag. Last year, the company reported net sales of $16.4 billion.
In April of this year, Ternium reported its results for the first quarter of 2023 and a review of the first quarter will show how the company is doing. Total steel shipments were 3.065 million tons, up 4% year-over-year, while iron ore shipments were down 11% yoy to 799,000 tons. The company’s quarterly net sales of $3.6 billion showed a 16% year-over-year decline and missed forecast by more than $25 million. In the end, however, the results showed a stronger positive trend; non-GAAP EPS of $1.91 was 92 cents per share better than expected.
The company ended the quarter with a solid cash position, reporting $612.3 million in net cash from operations. Capital expenditures were $197.9 million and free cash flow thereafter was $414.4 million. Ternium reported a $3 billion cash position exiting the first quarter, up 15% from the prior quarter.
Regarding the dividend, we note that Ternium takes an unusual approach and pays out twice a year. The final payments, sent in May in November, were $1.80 and $0.90 per ADS, respectively. These payments are $2.70 per ADS on an annual basis and yield a solid 6.5%.
The Ternium share has gained an impressive 50% this year, far outperforming the broader market. Still, according to Morgan Stanley’s five-star analyst Carlos De Alba, the stock is capable of continuing to make profits.
“TX stocks are undervalued and offer an attractive risk-reward ratio. We believe the TX’s profitability has reached a turning point and in the past this has proven to be a good entry point for the stock. The company has a strong balance sheet with a net cash position, even taking into account continued growth investments, and we expect it to pay an attractive dividend that is underestimated by the market… the stock, further boosting trading volume, De believed Alba.
To that end, the top analyst rates Ternium stock as overweight (ie buy), while his $51 price target implies ~17% upside potential over a year. Based on current dividend yield and expected price appreciation, the stock has a potential total return profile of ~23%. (To view De Alba’s track record, click here)
Overall, this old-school industry steadfast has accumulated 4 recent analyst ratings, including 3 Buys and 1 Hold, for a Strong Buy consensus rating. (To see TX stock forecast)
New York Community Bancorp (NYCB)
For the second stock on our list, we switch from the steel industry to the financials. New York Community Bancorp is a big name in the American banking industry. The New York-based bank holding company is the parent company of New York Community Bank; in the fourth quarter of last year it acquired Flagstar Bank, and in March of this year, in the wake of the bank default crisis, the Flagstar subsidiary acquired certain assets of Signature Bank.
NYCB now has approximately 435 locations and has total assets of $123.8 billion. In addition, the holding company has $83.3 billion in outstanding loans and $84.8 billion in deposits. The bank’s subsidiaries provide a full range of banking services for both retail and corporate clients, as well as corporate and real estate services. The company has regional headquarters in Troy, Michigan, and is one of the 100 largest US banks.
This bank holding company performed well in the first quarter of the year, as shown by the quarterly figures. 1Q23 was NYCB’s first full quarter after the Flagstar acquisition, so the results came in for additional attention.
On the top line, the company showed revenue of $2.65 billion. This was up from $346 million at the end of 1Q22, up more than 7x in just one year. The bottom line figure, earnings per share of $2.87 by GAAP measures, was up from the 31 cents in the same period a year ago and was $2.63 higher than forecast. Non-GAAP EPS was 23 cents per share and was 2 cents better than expected.
NYCB successfully integrated Flagstar into its business, acquiring, among other things, a major asset management business from the failed Signature Bank. The Q1 report showed that NYCB came out of last spring’s financial crisis stronger than before.
As for the dividend, this company has maintained a quarterly common stock payment of 17 cents since 2016, making the most recent payment in May of this year. The dividend of 17 cents amounts to 68 cents per common share on an annual basis and gives a strong return of 5.8%.
Analyst Steve Moss is eyeing this stock for Raymond James, who believes the acquisition of Signature assets puts the bank in a solid position to support future growth.
“We expect NYCB’s Q2 results to be marked by core deposit growth and NIM expansion, which should differentiate the bank from its peers and boost confidence in the EPS trajectory. We also expect NYCB to report a stronger balance sheet due to capital generation and lower wholesale funding following SBNY’s acquisition from the FDIC in March 2023. If NYCB is able to sustain these trends and retain most of SBNY’s teams, we think We believe the
stock’s valuation will move significantly higher over time,” Moss said.
This stance led Moss to post a Strong Buy rating on NYCB stock, and his $14 price target indicates a potential for 20.5% stock valuation over the next year. (Click here to view Moss’ track record)
In total, out of 9 recent analyst ratings on NYCB, 7 are to buy compared to 2 to hold, giving the stock a Strong Buy consensus rating. (To see NYCB Stock Forecast)
To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock insights.
disclaimer: The opinions expressed in this article are solely those of the named analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.
