Bob Dylan sang, “There’s too much confusion, I can’t get no relief,” and that is a good way to describe the condition of the markets right now.
Investors must interpret a range of conflicting signals. Macroeconomic data is rising – unemployment is falling, consumer confidence and spending are up – and indications are, the economy is recovering quickly from the sharp recession we experienced earlier this year. That goes hand-in-hand with a perception that COVID-19 is beginning to face back, and there are signs that another lockdown may be coming.
Will there be a national policy? Or will we see a state-by-state reaction. In that case, the blue states are more likely to double down on lockdowns, with California leading the way, while the red states try to maintain current conditions.
And speaking of blue and red, there is always the election looming over everything. While Democrat Joe Biden appeared to hold a comfortable lead through the summer, the race is tightening and incumbent President Trump is narrowing that gap, especially in the key swing states that will decide the electoral college.
It’s an investment environment that is made for dividend stocks. These are the classic defensive plays – reliable dividend payers provide a steady stream of income no matter whether the portfolio gains or loses.
Writing from Jefferies, which earns the top spot on TipRanks’ list of Top Performing Research Firms, three analysts show us why high-yield dividends are on their minds. These are their picks for proactive investors looking to buy into the market now, while prices are low – and the yields start at 8% and go up from there.
We’ve pulled the details on these three picks from the TipRanks database, to find out who else recommends them.
Compass Diversified Holdings (CODI)
First on the list is Compass Diversified, a holding company with a varied portfolio of middle-market businesses. The company’s portfolio generated over $1.5 billion in revenue last year. Compass has built its portfolio with a goal of long-term cash generation, and has a 22-year record of success. They use the cash to fund a generous dividend for their own shareholders.
That dividend yields 8.14%, more than 4x the average yield found among S&P-listed companies. Compass has kept its payment reliable for the past 14 years, an enviable record, and saw no need to make changes to the payment during the corona crisis. The current quarterly payout is 36 cents per common share, annualized to $1.44.
The company funds the dividend with strong revenues and earnings. The highly diverse portfolio helped insulate Compass from losses in the crisis atmosphere of 2020. In the first half, CODI reported EPS of 29 cents and 36 cents in the first two quarters. This was down 50 cents from 4Q19, but compares well with the 1H19 quarterly results of 18 cents and 36 cents.
Analyst Kyle Joseph covers this stock for Jefferies, and he is impressed.
“We view the anticipated recovery in portfolio company sales/EBITDA encouragingly and highlight that some businesses saw improving demand, highlighting portfolio diversification benefits. CODI has significant levels of dry powder to take advantage of recent market dislocation… we like CODI’s unique structure as a publicly-traded PE shop with permanent capital that affords the company enhanced investment flexibility/patience and competitive advantages,” Joseph opined.
Accordingly, Joseph rates CODI a Buy along with a $22 price target. That target implies an upside potential of 30% for the coming year. (To watch Joseph’s track record, click here)
Overall, CODI has a Moderate Buy from the analyst consensus rating, with 2 Buys and 1 Hold given in recent weeks. The stock’s share price is $16.91, and the $21 average price target suggests room for 24.5% upside growth in the next 12 months. (See CODI stock analysis on TipRanks)
Enterprise Products Partners (EPD)
Next up is an oil and gas company, part of the midstream sector that connects the wells with the customers. Enterprise controls a network of pipelines, for both oil and natural gas, totaling over 50,000 miles, along with storage facilities adequate for 160 million barrels of oil and 14 billion cubic feet of gas, and shipping terminals located in the hydrocarbon-rich Gulf coast of Texas.
Even with revenues and earnings slipping in the first half of this year, Enterprise finished 1H20 with solid liquidity. The company reported having $7.3 billion in available cash and credit. Q2 earnings were down 22% sequentially, but were inline with the analyst consensus.
The company has used its earnings and liquidity to maintain its dividend. The payment, at 44.5 cents, has been increased gradually over the past 12 years. The current payout annualized to $1.78 per common share, and yields an impressive 10.72%.
Jefferies analyst Christopher Sighinolfi was careful to note EPD’s liquidity strength in his note.
“…better than anticipated 2Q results illustrate the resiliency & flexibility of EPD’s assets and personnel, mgmt commentary underscores a continued recovery in operating conditions in 3Q… At quarter-end, EPD had $7.3B in consolidated liquidity, including $6.0B of available capacity under its credit facilities, and $1.3B in unrestricted cash,” Sighinolfi noted.
To this end, Sighinolfi rates EPD a Buy along with a $24 price target. This figure implies a strong 47% one-year upside from current levels.
Overall, Enterprise gets a Strong Buy rating from the analyst consensus, and it is unanimous, based on 7 recent Buy reviews. The shares have an average price target of $23.33, suggesting a 43% upside from the current share price of $16.28. (See EPD stock analysis on TipRanks)
Enbridge, Inc. (ENB)
Last up is Enbridge, Canada’s largest natural gas distributor – and the operator of the longest crude oil transport pipeline system in North America. Enbridge is a giant of the midstream sector, with over $60 billion in market cap.
As the corona crisis started and first took hold, in Q1, Enbridge saw little difficulty. The company reported high sequential gains in earnings for the 1Q20, with EPS rising from 46 to 62 cents (61 cents to 82 cents Canadian) and revenue stable at $9 billion ($12 billion Canadian). Q2 saw a reversal, as the effects of the pandemic hit Enbridge. Revenue fell to $5.9 billion ($7.9 billion Canadian), and EPS dropped to 41 cents (54 cents Canadian).
Through all of this, Enbridge has kept up its dividend payments – not missing any, even though the company did adjust payouts to keep the dividend sustainable. The current payment is 61 cents US (81 cents Canadian), and gives a yield of 8.2%.
Jefferies analyst Vikram Bagri notes several positive developments for ENB in recent months.
“ENB sanctioned $1B of new growth projects including four gas utility projects and another European offshore wind project… ENB extended approximately $10B of 364 day extendible credit facilities by one year bringing total liquidity to ~$14.6B, sufficient for ENB to execute on its plans,” Bagri explained.
Bagri rates ENB a Buy along with a C$49 price target (US$37.18), implying a 26% upside for the year ahead. (To watch Bagri’s track record, click here)
The analyst consensus rating on ENB is a Strong Buy; the stock has 12 Buys and 2 Holds set recently. Shares are selling for $29.57 (C$39.27), and the average price target of $39.63 ($52.23 Canadian) indicates room for a 34% upside potential. (See Enbridge’s stock analysis at 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.
