With all of the headwinds buffeting markets today – from inflation and political deadlock domestically to the Ukraine crisis on the world scene – it’s no wonder investors are seeking some combination of ‘low cost’ and ‘sure thing.’ What’s needed now are investment instruments that won’t break your bank, and will provide a solid return.
For the first, the natural place to look is at or near the bottom of the market’s price scale – say, to stocks under $10 per share. For the second, high-yield dividend payers are the classic play. Fortunately, there are stocks out there that combine both attributes: a share price under $10, and dividend yields starting at 7% and going up from there.
Using TipRanks’ database, we’ve dug the details on two stocks that fit this profile. Let’s take look under the hood, check in with the Street’s analysts, and find out what else makes these low-cost, high-yield dividend stocks compelling buys.
MFA Financial (MFA)
We’ll start with a real estate investment trust (REIT), always a sound place to look for high-yielding dividends. REITs are companies that buy, own, lease, and manage a wide range of real properties, or invest in various mortgage-backed securities (MBSs), in both the commercial and residential real estate industries. And, they are required by tax code regulations to return a specified percentage of their profits directly to investors. To meet this obligation, they frequently turn to dividend payments, a move that places them among the market’s most reliable high-yield dividend payers.
MFA Financial, which primarily invests in residential mortgage assets such as MBSs and residential whole loans, is typical of its niche. The company’s portfolio of mortgage assets has been showing strong growth recently, and in 4Q21 it approached $800 million, a sum that includes $450 million in loan originations from Lima One, a mortgage company which MFA acquired last summer. It was the second quarter in a row of record originations from Lima One.
Narrowing the focus from overall portfolio growth, MFA generated $35.9 million in net income for Q4, or 8 cents per share. While down from 11 cents in Q3, the Q4 result was in-line with the past 6 quarters, during which earnings have ranged between 6 cents and 11 cents per share.
MFA felt confident enough to declare, in December, its most recent common share dividend at 11 cents. This was up 10% from the past two quarters, and marks the third dividend increase in the past 5 quarters. At an annualized rate of 44 cents per common share, MFA’s dividend yields 9.77%.
In a note for Raymond James, 5-star analyst Stephen Laws writes: “We are [bullish] on MFA Financial (MFA) given our outlook for portfolio growth and the attractive valuation. New investments totaled $1.4 billion in 4Q, exceeding our estimates, with the recently acquired Lima One contributing $500 million of business purpose loans (BPLs). We expect new investments in non-QM loans and BPLs to drive higher portfolio returns. Shares currently trade at a 20%+ discount to economic book value, which we believe creates an attractive risk-reward opportunity given the growing portfolio, expanding portfolio ROEs, and recently increased dividend.”
In light of these comments, Laws gives MFA an Outperform (i.e. Buy) rating, and his price target, at $5.25, suggests a one-year upside of 29%. Based on the current dividend yield and the expected price appreciation, the stock has ~39% potential total return profile. (To watch Laws’ track record, click here.)
Laws’ is the only recent review of this stock on record. For now, MFA is trading at $4.06 per share. (See MFA stock forecast on TipRanks)
Archrock, Inc. (AROC)
From REITs, we’ll turn to the energy industry. Archrock is a major player in the US natural gas industry, especially in the midstream sector. Specifically, the company leads the market in providing natural gas compression services, a vital niche in liquefying gas and gas products prior to long-term storage and transport. Archrock has a presence – offices or operations – in all of the major shale plays and production basins in the lower 48 states, including the Appalachian region, North Dakota, the Central Rockies, and Texas and the Gulf Coast.
Archrock’s business is essential, and has given the company a remarkable degree of stability over the past couple of years. While we saw markets rise strongly through most of 2021, and fall sharply at the start of this year, Archrock through it all has shown consistent revenues of $195 million in each quarter of 2021, and EPS regularly between 3 and 6 cents.
In addition to steady earnings and revenue, Archrock has also paid out a consistent dividend of 14 cents per share. The company has kept the payment at this level since August of 2019, making the February 2022 declaration the 11th consecutive quarter with a 14-cent common share payment. This period, of course, includes the worst of the COVID crisis, and is consistent with Archrock’s 6-year history of dividend reliability. Best for investors, Archrock’s dividend, at an annualized rate of 56 cents per common share, yields 7%, more than 3x the average yield found among S&P-listed companies.
Analyst Selman Akyol, in coverage for Stifel, writes, of this company: “We believe Archrock provides investors with a well-diversified asset base focused on larger horsepower compression units. Additionally, we believe AROC’s financial profile and flexibility provides investors with a degree of security and is significantly more attractive compared to industry peers. Lastly, compression is a must-run service and servicing midstream assets should provide a higher degree of revenue stability.”
These comments support the analyst’s Buy rating, while his $10 price target indicates room for an upside of 14% for the year ahead. (To watch Akyol’s track record, click here)
There are 2 reviews on record for Archrock and they both agree that this stock is a Buy proposition, making the Moderate Buy consensus unanimous. The stock is selling for $8.71, and its $10.50 average price target implies an upside of ~21% in the next 12 months. (See AROC 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.
