Stock Analysis & Ideas

3 Bruised Dividend Stocks With ‘Strong Buy’ Recommendations, According to Analysts

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Wall Street remains incredibly upbeat on the following hard-hit dividend payers going into the second half. Though recession looms, the following companies seem well-equipped enough to pole-vault over the now lowered earnings bars ahead of them.

Dividend stocks have been quite steady in the first-half bout of market turbulence. Though relative valuations of blue-chip dividend stocks may appear less appealing as the rest of the market stabilizes, Wall Street analysts remain upbeat on a few notable names. In this piece, we used TipRanks’ Comparison tool to have a closer look at three dividend stocks with “Strong Buy” ratings and yields of 3% or higher.

Magna International (MGA)

Magna International is a Canadian auto-part manufacturer with a $18.6 billion market cap and 3% dividend yield. Though auto parts are quite cyclical, the firm views itself as a mobility technology company. As the auto market electrifies over the next decade, Magna finds itself in the driver’s seat (pardon the pun) of an intriguing boom.

It’s not electrification that could keep the auto market relatively robust through the next decade. Vehicles are becoming increasingly connected, and autonomy may be the next big step. Indeed, vehicles are becoming more and more like smartphones that we go inside. Demand for cutting-edge technologies and efficient auto parts will likely keep Magna stock an intriguing play to hang onto over the long haul.

Currently, the stock is attempting to come back after a more than 47% peak-to-trough slide. At 0.5 times sales and 27 times trailing earnings, MGA stock is an intriguing way to play the continued evolution of autos.

For the first quarter, Magna has felt the heat of inflation. Revenue declined 5% year-over-year, while full-year revenue guidance was trimmed to $37.3-$38.9 billion from $38.8-$40.4 billion. As the storm of inflationary and recessionary headwinds subside, MGA stock could be in for solid gains in the next bull market.

Despite headwinds, Wall Street is bullish, with the average MGA price target of $72.72 implying 13.2% upside potential. This is based on eight Buys and two Holds assigned in the past three months.

Philips 66 (PSX)

Philips 66 is an energy refiner midstream operator that’s been quite a choppy ride since bottoming out in late 2020. Shares recently slipped by nearly 30% from peak to trough before bouncing back sharply. Down just over 20% from its 52-week highs, the wide-moat energy company appears intriguing to yield-hungry energy bulls. At writing, the stock trades at 7.8 times trailing earnings, with a 4.2% dividend yield.

As energy prices remain elevated, even as the economy tilts into a slowdown, Philips 66 should continue generating impressive cash flow across its Refining and Midstream businesses. Even if refining demand were to take an unexpected turn lower, its Midstream and Chemicals segments could steady the ship and the durable dividend payout.

Indeed, Philips 66 is far more diversified than many of its refiner peers.

In its latest quarter, Chemicals and Refining were remarkably strong, powering an impressive 77% surge in revenue. As Philips 66 continues benefiting from the high energy price windfall, it should rake in considerable sums of cash to finance dividend growth and share buybacks. Last year, the firm gave $1.6 billion back to shareholders in the form of dividends and repurchases.

Wall Street is bullish on the $42.1 billion energy giant based on nine Buy ratings and just one Hold. The average Philips 66 price target of $116.00 implies 32.6% upside potential. Several five-star analysts have Buy ratings on the stock, including RBC (RY) Capital’s T J Schulz, who is ranked #40 out of 21,000 experts tracked by TipRanks.

Tapestry (TPR)

Tapestry is an upscale accessory (think handbags) and lifestyle company with a solid 3% dividend yield. The firm is best-known for some of its luxury brands like Kate Spade and Coach.

Over the past year, shares of Tapestry have been steadily tumbling into bear-market territory, down around 30% from its 2021 peak. Though consumer spending could fade quickly in a recession, it’s arguable that the more affluent consumers are likely to continue buying discretionary (nice-to-have) purchases.

Further, the strong brands look better able to dodge and weave through inflationary pressures. Luxury goods tend not to experience sales slumps in response to subtle price increases. If anything, higher prices bolster the brand’s luxury appeal.

In any case, a recession will weigh heavily on coming results. However, there seems to be a lot of damage already baked into the stock. Looking ahead, Tapestry hopes to leverage its brands more effectively on the international stage.

With TPR stock in the gutter, management announced a $1.9 billion shareholder return program. Rich dividends and share buybacks are in the cards, even with a recession on the way. Indeed, such share repurchases seem well-timed, given the stock looks incredibly cheap after its latest slump. Shares trade at just 1.3 times sales and 9.9 times trailing earnings.

Wall Street loves the name, with the average Tapestry price target of $44.56 implying 31.1% upside potential from TPR’s current price of $34.00. The stock has a Strong Buy consensus rating based on 13 Buys and three Holds assigned in the past three months.

Conclusion: Analysts are Most Bullish on PSX Stock

The following three dividend payers have experienced a bit of pressure and could fade further as a potential recession nears. Still, strong long-term fundamentals are likely to shine through. That’s likely a reason why Wall Street is still upbeat on these stocks despite the negative momentum. Of the three names, analysts expect the most upside potential from PSX stock over the next year.


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