Seeking at Least 12% Dividend Yield? Analysts Suggest 2 Dividend Stocks to Buy
Stock Analysis & Ideas

Seeking at Least 12% Dividend Yield? Analysts Suggest 2 Dividend Stocks to Buy

Standing here at the tail end of 2022, we can see the next year through the mist of uncertainty – and for now, that view is dominated by high inflation, rising interest rates and potential recession.

Looking at the market situation, Goldman Sachs strategist Christian Mueller-Glissmann writes: “We remain defensive for the 3-month horizon with further headwinds from rising real yields and lingering growth uncertainty… The growth/inflation mix remains unfavorable – inflation is likely to normalize but global growth is slowing and central banks are still tightening, albeit at a slower pace.”

The bottom line, according to Mueller-Glissmann, is that investors need to take defensive postures with their portfolio additions. And that will naturally lead investors toward high-yield dividend stocks. These income-generating equities offer some degree of protection against both inflation and share depreciation by providing a steady income stream.

Against this backdrop, some top-rated analysts have given the thumbs-up to two dividend stocks yielding no less than 12%. Opening up the TipRanks database, we examined the details behind these two to find out what else makes them compelling buys.

FS KKR Capital (FSK)

We’ll start with FSK, a financial services and advisory company focused on the BDC segment. That is, FSK offers high-level financing and asset management to business development companies, focusing on customized credit solutions for private mid-market firms operating in the US. FSK’s investment and equity portfolio is composed mainly of senior secured debt – that’s 71% of the total – and 89% of the debt investments are at floating rates. The company has active investments in some 195 portfolio firms, and the portfolio has a total fair value of $15.8 billion.

The portfolio is profitable, and in the last quarter reported, 3Q22, FSK saw a total investment income of $411 million, while adjusted net income came to 73 cents per share. Both figures were up 14% year-over-year.

For return-minded investors, FSK’s strong income supports a solid dividend. In Q3, the company paid out a common share dividend of 67 cents; this was increased in the declaration for Q4 to 68 cents per common share. At the new rate, the dividend annualizes to $2.72 and gives a robust yield of 14%. This beats the current rate of inflation by more than 6 points, and ensures that shareholders will receive a sound rate of return. The increased dividend, which includes a 61-cent base and a 7-cent supplement, is scheduled for payment on January 3.

John Hecht, 5-star analyst with Jefferies, has been covering this company, and he sees it holding a sound defensive position in a shaky economic situation. Hecht writes: “FSK remains a beneficiary of rising interest rates, with a predominantly floating rate book (90%)… For every 100 bps increase, FSK should see a $0.25 annual benefit per share or $0.06 per quarter with management emphasizing rate hikes typically take 6-12 months to be absorbed by the broader economy. FSK’s disciplined underwriting should offer it protection in a recession as only 4% of investments evaluated in 2022 are closed.”

Looking ahead, Hecht rates FSK shares a Buy, and he sets a $24 price target that implies an upside of ~23% for the one-year time frame. Based on the current dividend yield and the expected price appreciation, the stock has ~37% potential total return profile. (To watch Hecht’s track record, click here)

Overall, this high-yield dividend stock has picked up 6 recent reviews from the Street’s analysts, and their takes include 2 Buys against 4 Holds (i.e. neutrals) – for a Moderate Buy consensus rating. (See FSK stock forecast on TipRanks)

Ready Capital Corporation (RC)

The next dividend champ we’re looking at is Ready Capital, a real estate investment trust (REIT). These companies acquire, own, lease, and manage a variety of residential and commercial real properties, and draw their income from leasing, sales, and mortgage activities. In addition to directly owning or leasing properties, many REITs also offer financial services, especially small- to -mid-sized commercial and residential mortgages. This is where Ready Capital exists; the company specializes in mortgage loans backed by commercial real estate properties.

In its recent 3Q22 financial release, Ready Capital reported a GAAP EPS of 53 cents, and 44 cents in distributable earnings per common share, along with cash holdings of $208 million. The company’s net interest income was reported at $186 million, while the total net income came in at $66.25 million.

Those were sound numbers, and backed up the company’s dividend payment. Like all REITs, Ready Capital is required by tax regulations to return a high percentage of profits directly to shareholders – and dividends make a convenient vehicle for compliance. The company currently pays out 42 cents per common share, or $1.68 annualized, and the dividend yields 12.8%.

Covering this stock for JMP, 5-star analyst Steven DeLaney points out that the firm’s earnings came in above his estimates, before going on to say, “We believe Ready Capital warrants a premium valuation to the commercial mortgage REIT universe due to its multi-strategy credit origination and securitization platform.”

In line with his bullish view, DeLaney gives RC shares an Outperform (i.e. Buy) rating, and his price target of $16 indicates that the shares have, in his view, potential to grow ~21% in the year ahead. (To watch DeLaney’s track record, click here)

Overall, Ready Capital has attracted attention from 7 Wall Street analysts recently, and their reviews include 5 Buys and 2 Holds for a Moderate Buy consensus rating. (See RC stock forecast on TipRanks)

To find good ideas for dividend 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.


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