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3 Analyst-Loved, High-Yielding Dividend Stocks with Upside Potential
Stock Analysis & Ideas

3 Analyst-Loved, High-Yielding Dividend Stocks with Upside Potential

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Of all of the “Strong-Buy”-rated dividend stocks with yields over 3%, the following three names look enticing as we inch closer to an economic slowdown or recession. Let’s check in with Wall Street to see which name offers the greatest upside potential for the next 12 months.

High-yield dividend stocks still in the good books of Wall Street analysts have been in high demand of late. With a recession looking likelier for the first half of 2023, the price of admission into defensive plays has gone up of late.

In this piece, we used TipRanks’ Comparison Tool to compare three high-yielding stocks that analysts still believe in.

Though it’s difficult to gauge how they will fare as we move closer to a downturn, those caught between a rock and a hard place (inflation and negative market momentum) may find a place to hide with the following Strong-Buy-rated dividend plays.

Philip Morris (MO)

Tobacco firm Philip Morris boasts a remarkable 5.33% dividend yield that’s looking pretty enticing at this crossroads. The hefty payout, upbeat Wall Street analysts, and the stock’s reasonable multiple (15.7 times trailing earnings and 4.5 times sales) make the sin company an intriguing play for stagflation or a recession.

Though a recession may not impact results too drastically, the tobacco industry finds itself on the wrong side of a secular shift. Consumption of cigarettes and other associated products is likely to go down over the long haul. Such demand erosion will not happen overnight. It could take many years, giving the firm enough time to pivot and keep its rich dividend alive.

Heated tobacco products (HTP) have slightly higher margins than cigarettes and could be key to slowing the secular decline in cigarettes. Though HTPs can help Philip Morris dodge and weave through longer-term headwinds, the company’s hefty debt load could mute dividend growth, moving forward.

Philip Morris’ balance sheet isn’t in the best shape going into a higher rate environment. Though the dividend looks secure, the firm may wish to trim away its debt where possible.

Unfortunately, regulations could weigh heavily on the firm’s profitability prospects. Higher sin taxes and other efforts make PM stock a holding at risk of exogenous events.

Despite such concerns, Wall Street remains bullish based on four unanimous Buy ratings. The average Philip Morris price target is $114.00, implying 25.8% upside potential.

American Electric Power (AEP)

American Electric Power is another defensive dividend stock that can help investors navigate rough waters ahead. The firm boasts a 0.35 beta and a bountiful 3.3% dividend yield, making it an intriguing holding for those bracing for a rough second half.

The utility holding firm trades at 18.4 times trailing earnings, 2.8 times sales, and 8.6 times operating cash flow – not a bad price of admission for the electricity-generating titan.

With a nearly 6% compound annual dividend growth rate over the last five years, AEP shareholders are positioned to become rewarded over time, even with a mild recession thrown into the equation.

Despite AEP’s recession resilience, the firm’s energy mix is quite heavy in coal — the filthiest fossil fuel. While the sustainable energy business is encouraging, with wind plants and other projects to help the firm reach next-zero emissions by 2050, the firm will remain coal-heavy for the time being, and that could weigh heavily on shares that don’t have the best ESG rating in the world.

In any case, AEP is a defensive firm with a predictable cash flow stream. In times of uncertainty, such predictability is in high demand. Turning to Wall Street, analysts are bullish based on nine Buys and one Hold rating. The average AEP stock price target is $109.00, implying 15.6% upside potential.

Blackrock (BLK)

Finally, we have investment management behemoth Blackrock, which now yields a rich 3.23% dividend yield. The stock is in a bit of a slump, now down just shy of 40% from its all-time high.

Despite the profound weakness, Blackrock is still enjoying inflows as of the last quarter.

Analysts have been busy cutting their price targets, but the firm is still deserving of a premium valuation versus the peer group. It’s an asset-management heavyweight with a trusted name and relatively resilient assets. Investors would be more than willing to trust Blackrock with their hard-earned funds than a lower-cost firm.

Despite this, the trend seems to be gravitating toward passive investments and DIY. Younger investors are less likely to pay hefty fees to asset managers, a trend that could weigh over time.

With a wide moat and a massive $90 billion market cap, Blackrock can use its size to its advantage. Still, its size could get in the way as the firm looks to reignite growth.

At writing, the stock trades at 15 times trailing earnings — a very reasonable multiple for such a legendary financial company.

In any case, Wall Street is standing by the investment kingpin, with the average Blackrock price target coming in at $782.40, implying 31.2% upside potential. The stock has eight Buys and two Hold ratings assigned to it.

Conclusion – Wall Street Believes Blackrock Has the Most Upside Potential

The following +3%-yielders are still “Strong Buys” through the eyes of Wall Street analysts. Of the three names, they expect the most from Blackrock over the next year. I’m inclined to agree.

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