The bullish trend, which has been going on five months now, continues. The S&P 500 and NASDAQ set a new all—time high, and the Dow Jones is holding above 28,000, a level it has not seen since the end of February.
But what goes up, must come down; even Superman must come back down to ground. This is true in the markets, too, and this basic fact of life is planting a seed of unease in some investors’ minds. That unease may only just be stirring, but it’s real, and it has sparked some interest in the classic defensive stock: high-yield dividend payers.
These are almost a ‘traditional’ move for investors looking to protect their portfolios. High-yielding dividend stocks are less volatile than most of their peers. And the dividend payment ensures a steady income stream for investors. In effect, the return is shifted from share appreciation to dividend payouts.
Using TipRanks database, we’ve pulled three stocks with a profile sure to attract investors with an interest in dividend returns. Each is a small- or mid-cap company, with a Strong Buy rating from the Street’s analysts – and dividend yields that start at 6%. Considering that the average yield among S&P stocks is only 2%, these stocks stand out for returns.
AGNC Investment (AGNC)
We’ll start with AGNC Investment, a real estate investment trust based in the Maryland suburbs of Washington, DC. This REIT focuses on mortgage backed securities, specifically those backed or guaranteed by the US government. Federally backed securities make up more than three-fourths of the company’s portfolio, and total over $70 billion. The quality of Federal guarantees makes a solid base for the company’s investments.
That solidity is clear from the company’s 1H20 results. Earnings remained positive through the half, but more importantly, despite the corona crisis, the EPS results remained in-line with earnings in 2H19. The Q2 results, also, beat the forecast by a 26% margin.
Steady earnings and a slowly improving liquidity status allowed AGNC to maintain its monthly dividend payment through the recent crises. As a precaution, and to keep the payment congruent with lower share prices, the company reduced the dividend by 25% starting with the April payment. But lower dividend, at 12 cents per share, still annualizes to $1.44 and gives a hefty yield of 10.2%.
JPMorgan analyst Richard Shane likes AGNC’s current situation, describing it as “an attractive investment environment for MBS and a continued Fed backstop.” Getting into details, the 5-star analyst writes, “We believe the company offers a strong risk/reward profile. We believe AGNC remains one of the best-managed MREITs within our coverage universe… AGNC’s portfolio of agency MBS represents ‘flight to quality’ assets and benefit directly from Fed support with improved valuations and tighter spreads.”
Shane puts an Overweight (i.e. Buy) rating on the shares, and his $17 price target implies a one-year upside of 20%. (To watch Shane’s track record, click here)
Overall, with 6 Buy ratings and 1 Hold set in recent weeks, AGNC has a Strong Buy rating from the analyst consensus. The analysts expect an 8% premium from current levels, as indicated by the $15.14 average price target. (See AGNC stock analysis on TipRanks)
Ellington Financial (EFC)
Next up, Ellington Financial, operates in the mortgage finance sector. The company invests in a range of instruments, including mortgage-backed securities, commercial and residential mortgage loans, and equity investments. It’s a diverse portfolio, and standard for a finance-focused REIT.
Ellington saw revenues climb in the first quarter of 2020, beating the economic crisis and the forecasts. EPS, at 46 cents, was 39% above expectation. In Q2, EPS fell sequentially but continued to beat the estimates – it was reported as 39 cents, beating the forecast by 62%. Second quarter revenues came in at $43.3 million. Ellington reported strong cash holdings, with $146.7 million on hand at the end of Q2.
That cash helped fund a high-yield dividend payment. Ellington pays out monthly, and has been known to adjust the dividend to keep it in-line with earnings. During Q1, the company lowered the monthly payment from 15 cents to 8. Starting with the June distribution, they raised the dividend to 9 cents, where it stands now. The last declaration, on August 28, was for 9 cents per common share to be paid out on September 25. At that rate, the dividend has an annualized payout of $1.08 and an impressive yield of 8.5%.
Michael Diana, writing from Maxim, rates EFC shares a Buy, and his $16 price target suggests the stock has a 31% upside potential going forward. (To watch Diana’s track record, click here)
In his comments, Diana lays out bullish expectations for the stock: “During the next four quarters, we expect: 1) a dividend yield of 9.3% (reflecting a dividend increase in 1Q21); and 2) stock price appreciation of 31.1% (to our price target), which should result in an estimated 12-month total return of about 40%. EFC remains our top pick in mortgage REITs.”
Overall, EFC’s Strong Buy analyst consensus rating on EFC is based on 4 Buys and 1 Hold. The stock is trading at $12.25, and the average price target of $13.90 implies it has an 13.5% upside. (See EFC stock analysis on TipRanks)
Global Medical REIT (GMRE)
In a time of global pandemic, medical facilities would seem to be a natural investment. This would give Global Medical REIT a step up, by conventional wisdom, and it did. This company focuses on the acquisition and ownership of healthcare sector properties: diagnostic and outpatient clinic, group practice clinics, hospitals, and outpatient surgeries. Global Medical manages the physical infrastructure of the properties, and leases them to the clinical operators.
With medical services in demand, GMRE saw earnings remain stable in 1H20, while revenues slightly increased. The top line number in Q1 gained 5.8% sequentially to reach $21.65 million, and in Q2 revenues rose 2% to $22.05 million.
As the second quarter ended, GMRE was negotiating to improve its liquidity – a process that came to a successful conclusion in July when the company announced a $100 million addition to its existing credit facilities. And also in July, GMRE paid out its quarterly dividend of 20 cents per common share. The company has a 4-year history of reliably keeping that payment, and at the current rate, the dividend yield stands at 6.23%.
Bryan Maher, of B. Riley FBR, notes that Global Medical has been highly successful in keeping up its income stream, writing, “Management noted it had collected 95% of rents due in 2Q20 and that it had reduced its rent deferrals from ~$2.0M to $1.1M (~1.5% of 2020E rent) that would have ordinarily been collected from April-July, and which will now be collected from July-December 2020. While the impact of the COVID-19 pandemic is far from over, we believe these rent deferrals were far less than some investors were expecting.”
With that solid income in mind, Maher rates the stock a Buy sets along with a $15 price target. This figure implies room for 13% upside growth. (To watch Maher’s track record, click here)
All in all, GMRE’s Strong Buy consensus rating is unanimous, coming from 4 Buys given by Wall Street’s analysts. The stock is trading for $13.3, and the $14.25 average price target suggests a 7% upside from current levels. (See GMRE 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.
