Do you love dividends? Of course you do – and rightly so!
Academics who study the stock market's historical performance estimate that the payment (and reinvestment and compounding) of dividends has contributed between 30% and 90% of the S&P 500's total return over time. Put simply, if you're not investing in dividend stocks, you're doing something wrong.
Using the TipRanks platform, we searched for two stocks that offer at least a 10% dividend yield — almost six times the average yield found in the markets today. Each of these is rated Buy and has some positive analyst reviews. Let's take a closer look.
Crestwood Equity Partners (CEQP)
We start in the energy industry with Crestwood Equity Partners. The energy sector is notorious for running out of cash, and energy companies often use that cash to fund generous dividend payments. Crestwood is one of those dividend payers. The Company, a midstream operator, has an extensive network of assets located in several of the most prolific oil and gas producing regions of the continental United States.
These assets include gathering, processing, storage and terminal facilities, as well as trucks and railcars for transportation in the Williston, Delaware and Powder River basins. The company also has offices in the Carolinas, Florida, and Mississippi and Missouri. Crestwood has three main business segments including Gathering & Processing North, Gathering & Processing South and Storage & Logistics.
Since May of last year, Crestwood has streamlined its operations through a series of strategic divestment and acquisition initiatives. The Company divested some of its non-core assets, including its gas operations in the Marcellus Shale and its legacy network in the Barnett Shale. This allowed the company to focus its resources on expanding its reserves in the Delaware Basin and doubling its natural gas operations in that region.
Crestwood reported mixed results in its recently released Q1 2023 results. The company reported quarterly revenue of $1.26 billion, down 20% year over year and missing guidance by $40 million. However, the company's GAAP earnings of 15 cents per share came in above a 4 cent EPS loss in Q1 22 and came in 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. That was down from $116.7 million in the year-ago quarter — but it was more than enough to cover the company's distributions to common shareholders, which were reported at $69 million.
Those distributions were made through a dividend of 65.5 cents per common share paid on May 15. Paying $2.62 annually yields a strong 10% return.
Among the bulls is Truist's five-star analyst Neal Dingman, who is bullish on Crestwood.
“We believe Crestwood will benefit from the fruits of its relatively recent strategic mergers and acquisitions, with near-term upside already evident from the better-than-expected new wells plugged in last quarter. “Additionally, significant short-term increases allow the company to quickly regain ground lost from last year's storms and other problems,” said Dingmann.
“We continue to believe that Williston and Delaware remain two of the key regions where additional infrastructure will be required to continue planned operations. We forecast that CEQP will reach its 3.5x leverage target in the coming quarters, which will open up more return opportunities for shareholders,” the analyst added.
Looking ahead, Dingmann expects the stock to reach $30 per share over the next 12 months, a 13% gain. Based on the current dividend yield and the expected price increase, the stock has a potential total return profile of around 23%. This forecast justifies Dingmann's buy recommendation for the share. (To view Dingmann's track record, click here)
Overall, analysts at The Street give CEQP stock a consensus rating of “Buy Strong” based on 6 ratings that include 5 “Buy” versus just 1 “Hold.” The shares are currently trading for $26.69 and their average price target of $29.83 implies upside potential of ~12% over the next 12 months. (See CEQP Stock Forecast)
SFL Corporation (SFL)
Now we're shifting from the energy sector to ocean shipping, another stock class that's long been known as a dividend champion. SFL Corporation is a major player on the world's sea lanes of communications, operating a fleet of 74 vessels, mostly cargo vessels. The company's vessels include bulk carriers, oil tankers, container ships and car carriers, and range in size from a relatively modest 57,000-ton bulk carrier to a 308,000-ton VLCC, a very large crude oil carrier. SFL has historically sold older ships and reinvested the proceeds in newer ships to maintain a modern fleet.
A fleet of this size and diversity allows SFL to handle almost any cargo imaginable, and the company's vessels can be found on every major oceanic trade route in the world. The Company's vessels are largely operated on long-term fixed charters, providing stability to both the revenue stream and operating costs. SFL is one of the largest ship ownership companies in the world and has been publicly traded since 2004. The company has paid a dividend every quarter since going public.
SFL's operations are often booked years in advance and the company has a significant charter backlog. In its most recent Q1 2023 financial report, the company noted that two of its auto carriers had had their contracts renewed by three years, adding approximately $155 million to the backlog Herculesan ultra-deepwater rig currently located in Namibia, had a new four-year contract, adding approximately $50 million to the backlog.
Also in the 1Q23 report, the company reported net income of $6.3 million, which is 5 cents per share. That EPS was 10 cents below forecast. Despite the lack of earnings, the company has maintained its policy of providing shareholders with a return on capital, both through buybacks and dividends. SFL management announced a total repurchase policy of $100 million and declared a cash dividend of 24 cents per common share. The dividend payment is scheduled for June 30; At the current rate, the annual interest is 96 cents per share and the yield is 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 quarterly OCF as dividends, suggesting that SFL has ample leeway to grow its dividend over time.” increase… SFL continued to renew its fleet in the first quarter, agreeing to sell a Suezmax and two chemical tankers for a combined total of about $63 million. All three ships were active on the spot market. In the second quarter, SFL sold another naked Suezmax, generating approximately $41 million in proceeds that can be recycled into newer ships. Conclusion: SFL continues to execute its portfolio strategy, favoring a diverse fleet with high contract coverage that can support dividend growth through stable cash flows.”
To that end, Lewis rates SFL stock as a “buy” and gives them a price target of $13, suggesting upside potential of c.39% within a year. (To view Lewis' track record, click here)
SFL appears to be staying under the stock market radar and currently Lewis' only recent analyst rating for the stock is trading at $9.32. (See SFL Stock Forecast)
For great ideas on trading dividend stocks 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 featured analysts. The content is for informational purposes only. It is very important to do your own analysis before investing.