J.P. Morgan Pounds the Table on These 2 Reliable Dividend Stocks

The year has started well for stock market investors, no doubt of that. The S&P 500 has jumped 9%, and the NASDAQ is up nearly 17%. While this doesn’t reverse last year’s losses, the gains, prompted by several releases of positive economic data, do indicate a shift to more positive investor sentiment.

But there is always a voice of caution, and today it’s coming from JPMorgan strategist Marko Kolanovic, who warns that the stock rally likely won’t last – and that it has only postponed, not ended, the risk of a recession later this year.

Kolanovic sees an underlying weakness in current economic conditions, a weakness that is aggravated by the Federal Reserve’s policy of interest rate hikes. The central bank’s key funds rate is currently set in the range of 4.5% to 4.75%, after a 25-basis point increase announced on February 1.

“Unless the Fed starts cutting its nominal policy rates, these restrictive real policy rates would represent an ongoing headwind, keeping the risk of an eventual recession later in the year relatively high,” Kolanovic opined.

From a practical investment standpoint, this describes a situation made for defensive portfolios. The analysts at JPM clearly think so, as they have been tapping reliable dividend stocks as likely buys.

We’ve dipped into the TipRanks data to find out the latest details on two of JPM’s picks; they both feature reliable payment histories, supported by a firm corporate commitment to maintaining the dividend. Let’s take a closer look.

Brookfield Renewable Corporation (BEPC)

The first stock we’ll look at is Brookfield Renewable, a pure-play renewable power platform – and the world’s largest such company. Brookfield Renewable, which is 60% owned by the $75 billion Brookfield Asset Management, has focused on building a portfolio of wind, hydro, and utility-scale solar energy facilities, along with energy storage assets. The company is active in the Americas, in Europe, and in Asia; it operates some 25,400 megawatts of installed generation capacity and can make 8 million tons per year of carbon capture.

Brookfield Renewable has just released its 4Q22 and full-year 2022 results. Revenues for the quarter were listed as ~$1.2 billion, up ~10% year-over-year. Earnings for 4Q22 came in at a 16-cent EPS loss, 33% deeper than the 12-cent loss from 4Q21, and slightly worse than consensus forecasts of (0.15). However, the company had solid funds from operations; at $225 million, this metric was up $11 million from the prior-year quarter. On a per-share basis, the FFO came to 35 cents, compared to 33 cents the previous year.

During that last reported quarter, Brookfield continued its expansion activities, and commissioned new projects totaling some 3,500 megawatts.

This company has committed to paying out – and to maintaining – a reliable dividend payment to common shareholders. The last declaration, at 0.3375 per share, was made with the Q4 release, and will be paid out on March 31, 2023. The dividend annualizes to $1.35 per common share and gives a yield of 4.3%, about double the average yield found among div payers in the broader markets. Brookfield Renewables has been gradually increasing its dividend payment over the past several years.

JPM analyst Mark Strouse, who holds a 5-star rating from TipRanks, points out that renewable energy is a rapidly growing field, and that Brookfield Renewable Corporation holds a leading position in it. He writes, “We believe BEPC, along with related company Brookfield Renewable Partners (BEP), is best in class in the development and ownership of renewable projects, offering high-quality cash yield and good visibility into growth. We believe this stock should appeal to investors seeking long-term exposure to the secular growth theme of renewable energy.”

Taking this view and running with it, Strouse rates BEPC shares an Overweight (i.e. Buy), and his price target, now set at $39, implies a one-year upside potential of ~25% for the stock. Based on the current dividend yield and the expected price appreciation, the stock has ~30% potential total return profile (To watch Strouse’s track record, click here)

Overall, this stock has managed to slip under the radar, and there are only 2 recent analyst reviews on file – but they both agree that this is a stock to Buy, making the Moderate Buy consensus unanimous. The shares are trading for $31.27, and their $38 average price target suggest that a gain of 21.5% lies ahead or BEPC. (See BEPC stock forecast)

Oneok, Inc. (OKE)

Now we’ll turn our focus from renewables to hydrocarbons. Oneok is a midstream company operating in the natural gas industry, where its network of assets connects natural gas liquid suppliers in the Rocky Mountains, Mid-Continent, and Permian Basin regions with vital marketing and distribution centers. In addition, the company is expanding its footprint to include operations in the rich Bakken region of the northern Plains. Oneok’s assets include infrastructure for the gathering, processing, storage, and transport of natural gas liquids.

The company has posted generally rising revenues and earnings over the past year. We’ll have to wait for February 27 to see the most recent quarterly results, but the last report, from 3Q22, showed a net income of $431.8 million, up 10% year-over-year. On a per-share basis, the gain was similar, as diluted EPS rose 9% y/y to reach 96 cents. These gains were supported by solid increases in the company’s Rocky Mountain regional business, which saw a 9% increase natural gas volumes processed and a 17% increase in NGL raw feed throughput volumes.

A hint that current performance remains sound comes from the recent dividend declaration, for a common share dividend to be paid out on February 14. The payment, for 95.5 cents per common share, represents a 2% payment increase over the previous quarter. At the current rate, the dividend annualizes to $3.82 per share and gives a yield of 5.6%. This is almost triple the overall average dividend yield, and more than triple the yield found among peer companies. More importantly, Oneok’s dividend history stretches back decades, and the company has a reputation for always making the quarterly payments.

Going forward, Oneok can look for a smooth path, as last month the company announced an insurance settlement to close out all claims related to the ‘Medford incident.’ That event – an explosion and fire at the gas plant in Medford, Oklahoma that forced evacuations of homes and businesses – has been weighing on Oneok since last summer. The insurance settlement, totaling $930 million, officially puts all claims to rest.

What this means, for investors, is that Oneok is a much more reliable stock now than six months ago. Jeremy Tonet, of JPM, explains: “In a notable derisking event, OKE also announced a resolution to the Medford facility incident, not only removing an overhang on the stock but also surprising expectations to the upside, in our view…. Despite currently trading at a somewhat fuller valuation, OKE’s leverage to the Bakken, with a supportive fundamental environment for the basin and ethane upside optionality, presents a favorable risk reward profile, in our view, especially given the lack of direct natural gas price exposure.”

This favorable risk-reward profile earns the stock an Overweight (i.e. Buy) rating from Tonet, whose price target of $75 suggests a one-year gain of 9% for the stock. (To watch Tonet’s track record, click here)

Overall, OKE’s Moderate Buy consensus rating is based on 4 Buys and 8 Holds. Shares are currently trading for $68.71, and the $72.83 average target suggests ~6% upside. (See Oneok stock forecast)  

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a 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.