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Do you love dividends? Of course you do – and rightly so!
Scholars who study the stock market’s historical performance estimate that the payment (and reinvestment and compounding) of dividends over time have contributed between 30% and 90% to the total return of the S&P 500. Simply put, if if you don’t invest in dividend stocks, you’re doing it wrong.
Using the TipRanks platform, we tracked down two stocks that offer dividends of at least a 10% yield – that’s almost 6x higher than the average yield found in the markets today. Each of these has a Buy rating, with some positive analyst ratings. Let’s take a closer look at that.
Crestwood Equity Partners (CEQP)
We’re starting in the energy sector, with Crestwood Equity Partners. The energy industry is known for trickling cash, and energy companies often use that cash to fund generous dividend payments. Crestwood is one of those dividend payers. The company, which is a midstream operator, has a widespread network of assets located in several of the richest mainland United States oil and gas production regions.
Those assets include collection, processing, storage and terminal facilities, plus trucks and railcars for transportation in the Williston, Delaware and Powder River watersheds. The company also has offices in the Carolinas, Florida, Mississippi and Missouri. Crestwood has three main operating segments including Gathering & Processing North, Gathering & Processing South and Storage & Logistics.
Since May last year, Crestwood has streamlined its business through a series of strategic divestments and acquisitions. The company divested some of its non-core assets, including gas operations in the Marcellus Shale and its existing network in the Barnett Shale. This allowed the company to focus its resources on expanding its Delaware Basin games, doubling its natural gas business in that region.
Crestwood posted mixed results in his recently reported results for 1Q23. The company posted quarterly revenue of $1.26 billion, down 20% year-over-year and missing its forecast by $40 million. However, the company’s GAAP earnings, at 15 cents per share, exceeded earnings per share of 4 cents in 1Q22 and were 5 cents better than expected.
Of particular interest to dividend investors, Crestwood’s distributable cash flow (DCF) for the first quarter was $103.6 million. This was less than $116.7 million in the same quarter last year, but it was more than enough to cover the company’s distributions to common stockholders, which were reported at $69 million.
Those distributions were made through a dividend of 65.5 cents per common share, which was paid on May 15. The annualized payment of $2.62 gives a strong return of 10%.
Among the bulls is Truist’s 5-star analyst Neal Dingmann who gives Crestwood a cheery look.
“We believe that Crestwood will benefit from the fruits of its relatively recent strategic M&A activities, the near-term benefit of which is already visible through the better-than-expected new wells connected last quarter. Further through remarkable incremental near term, the company is rapidly making up for lost ground caused by last year’s storms and other issues,” Dingmann opined.
“We continue to believe that Williston and Delaware remain two of the key regions where incremental infrastructure will be required to continue planned operations. We predict that CEQP will meet their target of 3.5x leverage in the coming quarters, creating more opportunities for shareholders,” the analyst added.
Going forward, Dingmann expects the stock to hit $30 per share in the next 12 months, resulting in a 13% gain. Based on current dividend yield and expected price appreciation, the stock has a potential total return profile of ~23%. This projection justifies Dingmann’s Buy rating on the stock. (Click here to view Dingmann’s track record)
Overall, The Street’s analysts give CEQP stock a Strong Buy consensus rating, based on 6 reviews, including 5 Buys to just 1 Hold. The shares are currently trading for $26.69 and their average price target of $29.83 implies an upside of ~12% over the next 12 months. (To see CEQP stock forecast)
SFL Corporation (SFL)
Now we’re switching from the energy sector to moving ocean freight, another class of stocks that have long been known as dividend champions. SFL Corporation is a major player in the world’s communications shipping lanes, operating a fleet of 74 ships, primarily cargo ships. The company’s vessels include bulk carriers, oil tankers, container ships and car carriers, and range in size from relatively modest 57,000-ton bulk carriers to a 308,000-ton VLCC, or very large oil carrier. SFL has a history of selling older ships and reinvesting the proceeds in newer ships to maintain a modern fleet.
A fleet of that size and diversity allows SFL to carry almost any cargo imaginable, and the company’s vessels can be found on all of the world’s major oceanic trade routes. The company’s vessels are mostly operated on long-term, fixed charters, keeping both the revenue stream and operating costs stable. SFL is one of the world’s largest shipping companies and has been listed on the stock exchange since 2004. Since the IPO, the company has paid quarterly dividends.
SFL’s operations are often booked years in advance and the company has a significant backlog of charters. In its latest financial report, for 1Q23, the company noted that two of its auto carriers had contract renewals for three years, adding about $155 million to the backlog, and that Herculesan ultra-deepwater rig currently in Namibia had a new four-year contract, widening the backlog by about $50 million.
Also in its 1Q23 report, the company showed net income of $6.3 million, which amounted to 5 cents per share. This EPS figure was 10 cents below projections. Despite the loss of earnings, the company maintained its policy of returning capital to shareholders through both buybacks and dividends. SFL management announced a buyback policy totaling $100 million and announced a cash dividend of 24 cents per common share. The dividend will be paid on June 30; at the current rate, it works out to 96 cents per share on an annualized basis and yields 10.3%.
All of this has caught the attention of BTIG analyst Gregory Lewis, who says, “Over the past year, SFL has paid out 30%-60% of its quarterly OCF as dividends, suggesting that SFL has ample room to increase its dividend over the course of the year. time… SFL continued to renew its fleet in 1Q, with agreements to sell a Suezmax and two chemical tankers for a combined sum of ~$63 million, all three vessels trading on the spot market. In the second quarter, SFL sold another unsecured Suezmax, generating ~$41 million in proceeds that ca
n be recycled into newer vessels. In short, SFL continues to execute on its portfolio strategy, favoring a diverse fleet with high contract coverage that drives dividend growth can support through stable cash flows.”
To that end, Lewis rates SFL shares as a buy and gives them a price target of $13, suggesting a ~39% upside on the one-year horizon. (Click here to view Lewis’s track record)
SFL seems to be flying under Street’s radar and currently Lewis’s only current analyst rating for this stock, which is trading at $9.32. (To see SFL stock forecast)
To find great ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites 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.
