We’ve just had an object lesson in preparing for the bad when times are good. Last month, several Wall Street analysts turned bullish on high-yielding dividend stocks – recommending defensive plays even as the market was trending strongly upwards. And… then we had the short-squeeze frenzy to finish off January, leading to the worst month for the major stock indexes since October.
The market’s current conditions remain bullish overall, but the events of the past 10 days have reminded us all of the value in keeping a defensive segment to the portfolio.
Against this backdrop, we’ve used the TipRanks database to pinpoint three high-yield dividend stocks that all share some important features; They are paying out reliable dividends with upwards of 5% yield. And, in each case, at least one of Wall Street’s analysts has turned bullish (i.e. upgraded the stock). Given that analysts usually reiterate recommendations, upgrades are a clear sign of increasing confidence in a company’s outlook.
Regency Centers Corporation (REG)
We will start with Regency Centers, a Florida-based real estate investment trust (REIT). There is no surprise finding a REIT in a list of high-yielding dividend stocks; these companies are required by tax code compliance to return a high percentage of profits to their shareholders, and frequently use dividends as the vehicle.
Regency holds a diverse portfolio of desirable retail locations, 408 in total across 30 states, with 56 million square feet of leasable space. Even with the decline in brick-and-mortar retail due to the ongoing corona crisis, this portfolio has proven to be a continuing asset. The spaces are mainly shopping centers, located in affluent urban areas, and anchored by reliable, chain grocery stores.
In the third quarter of 2020, the last with numbers available, the company reported that its properties had a 93.4% occupancy rate, and that 98% of rents due were collected. From this, the company reported an EPS of 7 cents per share. While positive, this represents a serious year-over-year decline, mainly attributable to pandemic-related causes.
Even though income is down, Regency has maintained its dividend during the health crisis. The company’s most recent payment, which went out in early January, was for 59.5 cents per share – the same as the previous three quarters. Regency has a pattern of raising the dividend for the Q1 distribution, and has a 12-year history of reliable dividend growth. The 2020 dividends annualized to $2.38 and gives a yield of 5.07%.
Covering the stock from Compass Point, analyst Floris van Dijkum writes, “[REG] fully covered its 2020 dividend, based on our estimates, and is expected to retain approximately $75 million of cash post dividend in 2021… REG shares appear [to be a] value at the moment. REG trades at a 20% discount to NAV, wider than sector peers… On an implied cap rate spread, REG trades at 1.1% over its warranted cap rate of 5.5%… We recommend that investors capture this relative valuation spread… by swapping exposure into REG.”
Showing the extent of his bullishness, van Dijkum upgraded his stance of REG to a Buy, and raised his price target to $54. At current levels, his target implies a one-year upside of 15%.
So, that’s Compass Point’s view, let’s turn our attention now to rest of the Street: REG’s 4 Buys, 1 Hold and 1 Sell coalesce into a Moderate Buy rating. Meanwhile, the average price target stands at $50.75 and implies an 8% upside from the current levels. (See REG stock analysis on TipRanks)
Vornado Realty (VNO)
Next up, Vornado, is another REIT, with its headquarters in New York City. The company is known for its ownership of high-brow locations in the city, including the Crowne Plaza Hotel and One Penn Plaza. In addition to the properties of which it is full owner, Vornado is also 70% owner of 1260 Avenue of the Americas and San Francisco’s 555 California Street; in each of these cases, the remaining 30% is connected to former President Trump.
Those last-named properties are widely viewed as trophy assets, and were up for sale earlier in 2020. They were pulled from the market as the ‘corona recession’ deepened – and high-end real estate became something of a white whale. Both buildings remain valuable, however, in the range of $5 billion. Vornado is expected to either locate new tenants, or resume efforts to sell, later this year.
Vornado’s financials fell off sharply in 2020, when the corona crisis hit, but earnings turned positive in Q3. The company reported $53.2 million in net income attributable to common shareholders, or 28 cents per share, which was up from a net loss of $1.04 per share in Q2. The company attributes the year-over-year declines to building closures and lower rent collections due to the ongoing pandemic – but notes that financial results should improve as the city’s economic reopening accelerates.
Vornado was forced to reduce its dividend starting in Q3 2020, from 66 cents per common share to 53 cents, but it has maintained the payment since then. The next payout has been declared for February 12. At the current rate, the dividend annualizes to $2.12 and yields a 5.5%.
Truist analyst Michael Lewis covers VNO, and he sees the company’s potentialities opening up again now that 2020 is behind us.
“We like it better going into 2021 after earnings washed out in 2020… we think the narrative during the back half of this year will be reopening New York and getting it on a pathway to recovery after vaccine distribution,” the analyst noted.
Turning to specific buildings, and the income they generate, Lewis wrote, “PENN1 and PENN2 are expected to gradually contribute to growth from 2022-2024 – and the success of 220 Central Park condo sales means the funding is already raised and is sitting in wait to earn a return.”
In line with his upbeat outlook, Lewis upgraded VNO from Hold to Buy, and bumped his price target up to $46, implying 24% upside for the coming 12 months.
Looking at the consensus breakdown, analysts are split right down the middle when it comes to VNO. 2 Buys, 2 Holds and 2 Sells add up to a Hold consensus rating. Additionally, the $40.80 average price target implies ~10% upside from current levels. (See Vornado Realty stock)
Chevron Corporation (CVX)
From REITs, we’ll move over to the oil industry. This is another area rich with dividend potential, as Big Petroleum never lacks for customers, when facing headwinds. Those headwinds, in the past year, have included lower demand and lower prices during the COVID-19 recession – but as the coronavirus recedes, vaccines roll out in greater availability, and economies reopen, the price of oil has been rising. Since the end of October, WTI has gained 55% while Brent is up 54%.
The gain in oil prices can’t come at a better time for Chevron, whose operations include, among other concerns, 11,000 oil wells in the Texas Permian Basin, Australia’s $43 billion Gorgon Gas Project, and a 40% interest in 13 of Nigeria’s Niger Delta oil concessions. In 2H20, the company’s revenues rebounded from sharp declines in Q2, reaching $23.9 billion in Q3 and $24.8 billion in Q4. Earnings per share are still negative, but are trending back upward.
Many oil companies cut back on dividend payments in 2020 – but not Chevron. The oil giant has a 12-year history of keeping up its payments to shareholders, and kept its common share dividend at $1.29 per share through the difficult year. Last month, the company announced its first common-share dividend payment of CY21, also at $1.29. At that rate, the annual payout is $5.16 per share and the yield is 5.9%.
To this end, analyst Paul Cheng, of Canada’s Scotiabank, saw fit to upgrade CVX’s rating from Neutral to Outperform (i.e. Buy), while raising the price target to $110 (from $95). This figure suggest a 23% upside from current levels.
“As a result of the shares’ recent sharp underperformance, we think the company’s relative valuation has become compelling. While we don’t think CVX will perform as well as some of the large cap E&Ps… we think they will be a solid outperformer among the super majors and a good long-term holding with a solid management team focused on their cash return business model,” Cheng commented.
Overall, Wall Street appears to be sanguine about Big Oil. CVX has 14 recent reviews, breaking down 10 to 4 in favor of the Buys and making the analyst consensus rating a Moderate Buy. The shares are priced at $89 and the $105.08 average price target suggests the stock has room for ~18% growth this year. (See Chevron Corporation stock analysis )
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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.