The S&P 500 is up 27% over the last 6 months, and Wall Street’s analyst class is starting to point out that we may be due for some deceleration. In part, this may be an application of physics to market activities – what goes up must come down – but it may also be tied to an old market saying, ‘Buy in May and go away.’ It’s a long-recognized pattern that the warmer months tend to see a slowdown in market activity.
Among the skeptics is Stifel strategist Barry Bannister, who believes the good times may not stick around through 2021.
“When you think about it, the stock market is typically very strong from the 1st of November to the 30th of April. That's the seasonality effect... [The S&P 500] went to right where it was supposed to at 4,200, it looks like it's going to be. But it also argues that the summer of 2021 will be difficult... That can be caused by China tightening, which they're doing, Europe hesitating on fiscal, which they're doing, and the US dollar perhaps strengthening a little bit, which weighs on global liquidity growth. So I think it's been a fun ride, and it's typically strong in November to April, but it sometimes fades,” Bannister opined.
If Bannister's views come close to the actual events, then it makes now the time to move toward a more diversified, defensive portfolio. Dividend stocks are a traditional defensive play. A reliable dividend payer typically gains less in a bullish market, but makes up for that with a steady dividend payment.
With this in mind, we’ve used the TipRanks' database to find three stocks offering dividend payment of 7% or better, along with a Buy rating from the Street. Let’s take a closer look.
The energy industry isn’t all Big Oil. Households need fuel, too, and that’s where Suburban Propane comes in. The company got its start marketing propane for home use, and has since expanded to offer a range of fuels and fuel oils, along with natural gas and electric utility services, to the residential, commercial, and agricultural markets. The company is headquartered in New Jersey and boasts 3,300 employees and operations in 41 states to more than 1 million customers through some 700 locations.
Suburban’s business shows a strong seasonal pattern, with the first and second quarters of the year having higher revenues and earnings than the third and fourth quarters. This was clear in the recent 1Q21 report, with the pattern overlaid by losses due to the now-receding COVID pandemic. Q1 revenues came in at $305.2 million, below the consensus estimates and also down 8.5% from the prior-year Q1. EPS came in at 61 cents, down from 64 cents one year ago.
On a positive note, earnings are more than sufficient to pay the regular dividend, which the company has recently declared for payment on May 4. The dividend, at 30 cents per common share annualizes to $1.20 and gives a yield of 8.2%. Suburban Propane has a long history of keeping the dividend payment reliable – and of adjusting the payment when needed to keep it in-line with earnings.
Covering SPH for Argus, 5-star analyst David Coleman acknowledges the company’s weak points, but sees it as an overall growth proposition.
“Although Suburban posted weaker-than-expected fiscal 1Q21 earnings, reflecting unseasonably warm weather and the impact of the pandemic, we note that industry trends for propane companies are now improving. The company cut its quarterly dividend in half, to $0.30 per unit, in July 2020; however, we believe that the cut was prudent and note that the stock still yields about 8%, which is attractive in a low-interest-rate environment,” Coleman wrote.
To this end, Coleman rates SPH shares a Buy, and his $18 price target implies an upside of 21% for the year ahead. (To watch Coleman’s track record, click here)
SPH has slipped under most analysts’ radar; the stock’s Moderate Buy consensus is based on just two recent Buy ratings. The shares are selling for $14.85, and the $18 average price target matches Coleman’s. (See SPH stock analysis on TipRanks)
Rattler Midstream, like Suburban Propane, lives in the energy universe – but Rattler is a midstream company, spun off of Diamondback Energy in 2018 to develop, operate, and acquire midstream assets in the parent company’s operating areas of the Midland and Delaware formations of Texas’ Permian Basin.
Rattler has been climbing, for several months, out of a deep hole caused by the COVID pandemic and depressed demand. Higher oil prices are helping the company, and in Q4 Rattler reported $109.2 million in revenues, up from $96.5 million in Q3, but still down 12.8% from the year-ago quarter. EPS showed the same pattern; at 21 cents, it was up from 19 cents in the prior quarter, but down 25% year-over-year.
Even with revenues and earnings not fully recovered from the pandemic hit, Rattler kept up its commitment to returning profits to investors. The company bought back 1.65 million common shares during Q4, at a cost of $14.7 million, and approved a Q4 dividend of 20 cents per share. The current payment annualizes to 80 cents per share, and gives a yield of 7.3%.
Covering Rattler for Raymond James, Justin Jenkins notes, “While RTLR has only one main customer, it is an investment grade large-cap near pure-play Permian producer with scale. We also expect RTLR to recruit slightly more generalist interest relative to peer MLPs thanks to its involvement with FANG.”
Jenkins goes on to explain why he believes Rattler is sound proposition: “Once we move past the 1Q21 noise, we expect 2021 to be a relatively quiet period of solid execution for RTLR. While the potential for a dropdown could create some headlines, we expect a relatively small, leverage neutral, and moderately valued transaction that does little to shift the overall story. Increasing confidence in the FANG outlook will improve the relative standing of RTLR on a similar basis.”
Based on the above, Jenkins rates RTLR an Outperform (i.e. Buy), and sets a $13 price target, indicating ~19% upside for the next 12 months. (To watch Jenkins’ track record, click here)
Overall, there are 6 analyst reviews on record here, including 2 to Buy and 4 to Hold, for an analyst consensus of Moderate Buy. The average price target is $12, suggesting ~9% upside from the $10.97 trading price. (See RTLR stock analysis on TipRanks)
Shifting gears, we’ll move over to the Real Estate Investment Trust segment. In a way, this is inevitable; REIT companies are known for their high yielding, reliable dividend payments, dictated at least in part by tax regulations that require them to return a high share of profits direct to investors. Broadmark Realty Capital holds a portfolio of mortgages and mortgage-backed securities, with a focus on construction and development. The company has funded over 1,200 loans over the past decade, for an aggregate of more than $2.8 billion.
In its most recent quarterly report, for 4Q20, Broadmark reported making $194.8 million in loan commitments, and generating $32.5 million in top line revenue. The revenue was up 8.3% from the $30 million reported in the year-ago quarter, as well as up 12.4% from Q3. EPS was 17 cents per share, a far cry from the 5-cent loss recorded in 4Q19. The company reported finishing 2020 with over $223 million in cash on hand.
Plenty of cash and rising revenues and earnings means that Broadmark can afford its dividend. The company pays this out monthly, and in April declared the May payment for 7 cents per common share. This annualizes to 84 cents per share, and gives investors a yield of 7.8%.
B. Riley analyst Randy Binner, rated 5-stars by TipRanks, sees a clear path ahead for Broadmark's continued growth.
“Our view is that FY21 should see credit trends revert back to more normalized levels, which should be an added tailwind to net interest income... we see potential upside to the stock as the company continues to resolve defaults, grows the public REIT portfolio and private AUM, and gets the dividend growth story back on track in FY21,” the analyst noted.
In line with those comments, Binner puts a Buy rating on BRMK, along with a $12.50 price target, suggesting 15% upside in the year ahead. (To watch Binner’s track record, click here)
Overall, BRMK gets a Moderate Buy rating from the analyst consensus, based on 2 Buys and 1 Hold. The relatively small number of reviews reflects the ‘under the radar’ profile of most REITs in the markets. Shares in BRMK sell for $10.87, and the $11.75 average price target suggests an 8% upside potential. (See BRMK stock analysis on TipRanks)
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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.
