The dividend strategy is popular for investors looking to protect their income stream. Dividends provide a steady return on investment, known well in advance and so amenable to long-term planning. And while dividend stocks typically don’t show the high share appreciation possible in some big market winners, they make up for it with reliability and predictability.
The corona crisis has turned this on its head – or has it? Many companies have reacted to the economic downturn by suspending dividend payments as a way to maintain liquidity, while others have cut back on dividend payments to keep yields stable. But it’s still possible to find companies that are keeping their dividends pinned to those two key factors: reliability and predictability. It just takes a bit more looking.
Wall Street’s analysts have been doing some of the footwork for us, pinpointing dividend-paying stocks that have kept up reliably high yields despite the coronavirus. Opening up the TipRanks database, we examine the details behind those payments to find out what else makes these stocks compelling buys.
Euronav NV (EURN)
We’ll start with Antwerp-based shipping company Euronav, the world’s largest operator of crude oil tankers. Euronav’s fleet includes 74 vessels, mostly in the Very Large Crude Carrier (VLCC) and Suezmax categories. The company maintains active transport operations, as well as offshore storage services. EURN shares have been highly volatile during the current market cycle – but since late June have been rising steadily.
The offshore storage business has powered strong earnings in 1H20. Euronav saw quarterly revenue and earnings rise in both Q1 and Q2, bucking the ‘normal’ trend in the corona crisis. Q2 earnings came in at $1.14 per share, beating the forecast and growing 13 cents sequentially.
From Q1 2020, Euronav has announced a quarterly dividend policy. The company is targeting an 80% return – that is, using the dividend to return 80% of net income to shareholders. Under this policy, the dividend payment is adjustable – but likely to give a high yield. The current payment is set at 47 cents per common share, giving a yield exceeding 18%. The payment has been declared for the end of August. The company is using share repurchases in conjunction with the dividend policy to boost the stock price and assist in returning profits to investors.
That combined dividend/repurchase strategy caught the attention of Evercore analyst Jonathan Chappell. He wrote of the stock, “EURN held true to its floating 80% return of capital policy, but with a prudent twist. Rather than paying 80% of its record earnings in the form of a dividend, EURN has blended cash dividends with share repurchases, on a nearly 50/50 basis, with $75 million of stock repurchased since late June and with another $25 million slated for buybacks by the end of 3Q… [The] blended capital return strategy is building longer-term value amid a highly volatile and uncertain market backdrop. EURN retains nearly $1.1 billion of liquidity, thus even the generous returns of capital are not impacting its ability to invest…”
To this end, Chappell rates the stock an Outperform (i.e. Buy), based on his upbeat view of its return potential. His $15 price target indicates confidence in a robust 48% one-year upside. (To watch Chappell’s track record, click here)
The analyst consensus rating on Euronav is a Moderate Buy, based on 9 reviews, including 7 Buys, 1 Hold, and 1 Sell. The stock is selling for $10.13, and the $12.31 average price target implies an upside potential of 21.5% for the next months. (See Euronav stock analysis on TipRanks)
Iron Mountain, Inc. (IRM)
Next up, Iron Mountain, is an information management company, offering records management, information destruction, data backup and recovery services to Fortune 1000 companies around the world. Based in Boston, Iron Mountain has turned the corona crisis to its advantage, marketing its services as essential for a digital economy moving more and more toward remote work and paperless offices.
One immediate result was that IRM saw first half earnings beat expectations by wide margins. In Q1, EPS beat by 31%; in Q2, the EPS beat was 26%.
Iron Mountain has used its solid earnings position to keep up a reliable dividend. The current payment is 61.8 cents per common share, and has been held at that rate for four quarters now. The company has a history of raising the dividend once each year, in the fourth quarter. The Q3 payment, declared this month, will be paid out in September. At the current rate, the dividend yields over 8.3%, more than 4x higher than the average yield found among S&P listed companies.
Sheila McGrath, reviewing the stock for Evercore ISI, notes the company’s commitment to maintaining a reliable dividend, as well as its success in its general business niche: “IRM proved its nimbleness in the face of COVID in identifying new revenue opportunities for its clients and appropriately is reducing costs… IRM continues to take cash flow from its high margin storage business and redeploys capital into international markets, data centers and faster growing adjacent business… The improved margin and savings will help IRM to meet its reduction of leverage metrics over time while maintaining its dividend.”
Accordingly, McGrath rates IRM an Outperform (i.e. Buy) along with a $32 price target, which implies a 7% upside from current levels. (To watch McGrath’s track record, click here)
Overall, Iron Mountain has a unanimous Strong Buy analyst consensus rating, based on 3 Buy reviews set in recent weeks. The stock’s average price target matches McGrath’s, at $32. (See Iron Mountain stock analysis on TipRanks)
Sunoco LP (SUN)
Last on today’s list of dividend stocks is an energy industry player, Sunoco LP. This partnership company is distributor of motor fuels, supplying stock to more than 7,300 Sunoco-branded gas stations across 33 states – all of which makes Sunoco LP the largest fuel distributor in the US.
As can be imagined, the economic disruptions of 1H20 hit SUN hard. The social lockdown policies in Q1 drove earnings deep into negative territory – but the unavoidably essential nature of the company’s product and services combined with at least partial economic reopening in Q2 pushed EPS back to normal levels in the second quarter.
Last month, Sunoco declared its dividend, maintaining the payment at 82.6 cents per common share and setting the payout date on August 19. At that rate, the dividend annualizes to just over $3.30 per share, and gives a yield of 12.7%, an excellent return by any standard. Sunoco LP has an 8-year history of keeping up reliable dividend payments.
5-star analyst Elvira Scotto, of RBC, sees Sunoco holding a solid business position poised for growth. She writes of the stock, “SUN posted a strong 2Q20 in the midst of the pandemic…, and SUN now expects 2020 EBITDA to exceed its original 2020 guidance it provided in December. SUN continues to solidly execute on its strategy and results highlight the strength of SUN’s portfolio approach and gross profit optimization strategy.”
In line with her optimism, Scotto rates SUN Outperform (i.e. Buy) along with a $32 price target, which implies a one-year upside of 21%. (To watch Scotto’s track record, click here)
All in all, SUN shares are currently selling for $26.51 and have an average price target of $30.20, indicating a solid upside potential of 14%. The stock has a Moderate Buy analyst consensus rating, based on 4 recent Buy reviews and 2 Holds. (See Sunoco 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.