Measuring and gauging the stock market's value is key to an investor’s strategy. Right now, it’s clear that the market is in the midst of a shift, that last year’s sustained run of gains has ended, that this year, which started with sharp losses and increased volatility, will be something different.
Covering the market for investment firm Raymond James, strategist Tavis McCourt writes: “We are seeing a substantial rally in growth broadly in the last two weeks, and it is still unclear if this is just a reversion to the mean after severe value outperformance YTD... We’re not a big believer that growth can outperform value if rates keep going up, but we are also less certain that long term rates will keep going up than we were two months ago due to the commodity inflation unleashed.”
In short, McCourt is showing a preference for value right now, perhaps mildly, and for taking a defensive posture in the current environment. And that will lead us to dividend stocks. These are the stocks which will ensure a steady income no matter the day-to-day market swings and protect the portfolio against any incoming volatility.
In coverage of specific dividend stocks, Raymond James analyst Stephen Laws – rated 5-stars by TipRanks – has picked out two high-yield dividend payers for investors’ consideration. These are stocks with Strong Buy consensus ratings from the Street, and dividend yields at least 8%. Opening up the TipRanks database, we examine the details behind these two to find out what else makes them compelling buys.
We’ll start with Starwood, a real estate investment trust (REIT) whose portfolio of commercial mortgages, residential investments, and infrastructure loans totals some $24 billion. The strength of Starwood’s portfolio and investments can be seen in the recent 4Q21 earnings release.
For the quarter, revenues came in at $302.3 million, flat from the third quarter, only up 3.7% from 4Q20, but still the highest print since 1Q20. The real gain came in earnings, which registered a strong positive surprise. The company reported earnings of $1.10 per share, more than double the 52-cent EPS expectation. In addition, Starwood finished 2021 with $217.3 million in cash and liquid assets on hand.
The company’s firm financial foundation gave management confidence, this past March, to declare the 1Q22 dividend at 48 cents per common share. The dividend will be payable on April 15. The dividend annualizes to $1.92 per common share, and gives a yield of 8%; this is some 4x the average dividend found among the S&P-listed firms.
Starwood’s dividend isn’t just high, it is also reliable – the company has an 8-year history of maintaining the payments, and during the corona crisis of the past few years, Starwood kept the dividend stable and did not make any reductions.
Covering Starwood for Raymond James, Laws is impressed by the company’s generally strong position and optimistic prospects going forward.
"We are adding STWD to the Analyst Current Favorites list given 1) the strength across multiple business segments, 2) our expectation of increasing portfolio returns and higher fair value, and 3) the attractive valuation... Shares currently trade at a slight premium to peers; however, we believe a material premium is warranted given our outlook for higher portfolio returns, increasing fair value, benefits of the business diversification, the strong balance sheet, and stable dividend," Laws explained.
Based on the above, Laws upgraded his rating on STWD shares, from Outperform to Strong Buy, and his $32 price target indicates potential for ~32% one-year upside. (To watch Laws’ track record, click here)
It’s not just Raymond James that is bullish on Starwood. All three of the recent analyst reviews here are positive, giving this REIT a Strong Buy consensus rating. The stock is selling for $24.17 and its $29 average price target suggests ~20% gain in the year head. (See STWD stock forecast on TipRanks)
The second dividend stock on Raymond James' radar is New Residential Investment. This is another REIT which, as its name suggests, is heavily invested in residential properties and mortgage loans. The company’s investment portfolio totals just over $7 billion, with the largest portion, 29%, being in mortgage services. Other large portions include loan origination (24%) and servicer advances (18%).
Early in February, the company reported its best quarterly revenue result since 4Q19. For the fourth quarter of 2021, NRZ had a top line of $923.9 million, up from $804.7 in Q3 – and up a robust 59% from the year-ago quarter. EPS came in at 40 cents, up 25% year-over-year. The company had available cash assets of $1.33 billion.
In March, NRZ declared its 1Q22 common stock dividend. The company has a long history of maintaining payments, even during difficult conditions. It was forced to slash the dividend back in April of 2020, due to the corona pandemic – but it has been gradually raising the payment since then, making four increases in the last 2 years.
The current payment, of 25 cents per common share, is the third at this level. It is payable on April 29. The dividend annualizes to $1, and gives a yield of just over 9%.
Standing squarely in the bull camp, Laws rates NRZ an Outperform (i.e. Buy), and his target price, at $13.50, suggests an upside of 26% by year’s end.
Backing his stance, Laws writes: “We expect NRZ to post more stable earnings than many peers given the company’s diversified business, as we expect higher income from the MSR portfolio to offset declining gain on sale income. Our Outperform rating is based on our portfolio return expectations, the diversified business, potential benefits of slower repayments on the servicing portfolio, improved portfolio financing, and the attractive valuation relative to our target.”
Overall, NRZ's 5 recent analyst reviews all came in positive, making for a Strong Buy consensus viewpoint. With an average price target of $12.60 and a current trading price of $10.73, this stock has a one-year upside of ~17%. (See NRZ stock forecast on TipRanks)
To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
