Inflation, interest rates, and recession – these are the bogeymen of investing, and they’ve been watching over our shoulders for the past several months. We all know the story by now, the rate of inflation is running at generational highs, the Federal Reserve is hiking rates in an attempt to push back against high prices, and that’s likely to tip the economy into recession. At a time like this, investors are showing a growing interest in finding strong defensive portfolio moves.
It’s a mindset that naturally turns us toward dividend stocks. These are the traditional defensive investment plays, offering steady payouts to shareholders that guarantee an income stream whether markets go up or down. The best dividend stocks will combine a high regular payout with a solid share appreciation potential, giving investors the best of both worlds when it comes to returns.
Stifel analyst Benjamin Nolan, holds a 5-star rating from TipRanks, has been looking for just such investments, and has picked out several. Using the TipRanks database, we’ve pulled up the details on two of these stocks, which are offering dividend yields of 16% or better. That’s more than enough, on its own, to assure a positive real rate of return, but each of these stocks also brings a double-digit upside potential to the table. Let’s take a closer look.
Genco Shipping (GNK)
The first company we’ll look at is Genco Shipping, a bulk carrier in the global ocean shipping network. Bulk carriage is hardly a ‘sexy’ industry, but it is absolutely essential, moving cargos of grains, ores, metals, coal, and other bulk goods that our supply chains depend on. Genco maintains a fleet of 44 modern drybulk carriers, ranging in size from 55K dry weight ton Supramax vessels to the largest 165K+ dwt Capesize carriers.
Genco’s fleet is wholly owned and is operated on a charter basis; that is, the ships are leased out to cargo holders, who take on responsibility for vessel routing, loading and unloading, and general safety during the charter period. Genco makes its money from the charter rates. The company benefited greatly from high rates earlier in the year, but the stock has fallen in recent months as global trade has slowed.
That slowdown has impacted Genco’s top and bottom lines, which peaked in 4Q21. Since then, revenues and earnings have fallen off, although the company remains profitable. 2Q22 saw Genco report revenues of $137 million, a net income of $47 million, and diluted EPS of $1.10. Despite the drop from the end of last year, all of these numbers are still well above the 2Q21 results.
The company’s last declared dividend, paid out in August, was for 50 cents per common share. Genco has a history of adjusting its dividend payment to fit with distributable earnings. At its current rate, the dividend yields 16.5%, well ahead of the inflation rate.
Benjamin Nolan sees Genco as a sound investment, and initiates his coverage of the stock with comments that highlight both the risk and reward of the shipping sector: “While dry bulk shipping rates have fallen off in recent months, we expect stronger seasonal demand and believe China will recover post-lockdown, given the likelihood of subsequent stimulus. On top of that, the orderbook is at a multi-decade low, so any slight increase in demand should push rates up meaningfully.”
“Assuming mid-cycle rates and cash flows, we believe GNK shares are undervalued on both a multiple and EBITDA basis, and expect share price to recover as rates normalize,” Nolan summed up.
In Nolan’s view, Genco is a Buy with a target price of $20, implying a one-year upside potential of 65%. (To watch Nolan’s track record, click here)
Nolan is hardly alone in his upbeat take on Genco. This shipper has attracted 5 recent Wall Street analyst reviews, and they all agree that it’s a stock to Buy, for a Strong Buy consensus rating. The shares are priced at $12.12, and with an average price target of $25, they have a robust 106% upside on the 12-month horizon. (See GNK stock forecast on TipRanks)
Eagle Bulk Shipping Inc. (EGLE)
The second stock dividend stock we’ll look at is Eagle Bulk Shipping, another player in the drybulk carriage sector. Eagle Bulk focuses on short-haul end of drybulk, operating a fleet of 52 vessels at the smaller end of the size scale, Supramax and Ultramax carriers rated at 52K to 63K dry weight tons. In all, the company’s fleet totals over 3 million tons and averages less then 10 years old. Eagle Bulk’s vessels carry the usual run of bulk cargos, from cement and fertilizer to grains, coal, and ores.
Eagle saw record-level revenues in 2Q22, when the top line hit $198.7 million, for a year-over-year increase of 53%. This impressive result was coupled with an adjusted net income of $81.6 million, or $6.28 in adjusted EPS. The company finished the quarter with $141.5 million in cash on hand, up 68% from the year-ago quarter.
That strong cash generation over the past 12 months prompted management to increase the Q2 dividend by 10%, bumping it from $2 per common share to $2.20. At the current rate, the dividend annualizes to $8.80 and gives a yield of 21%. Not many companies can match that yield. The dividend was last paid out in August.
This is another company whose performance – and especially, dividend performance – have caught Nolan’s attention.
“The dry bulk shipping market has enjoyed a strong recovery from 2020, and there is more runway, in our view… the orderbook is at multi-decade lows, and demand tailwinds, both seasonal and nuanced, within iron ore, coal, and Ukrainian grain should continue to keep demand intact, sustain and drive higher shipping rates, and consequently, earnings power for EGLE. Shares have pulled back and, we believe, present a favorable entry point for investors as there is substantial upside,” Nolan opined.
Looking forward, Nolan rates EGLE as a Buy, and his price target of $62 suggests it has ~50% upside ahead of it. (To watch Nolan’s track record, click here)
Wall Street, generally, likes this company, as shown by the Strong Buy consensus rating supported by 5 unanimously positive recent analyst reviews. The stock has an average price target of $72.40, which indicates ~76% upside potential from the trading price of $41.21. (See EGLE stock forecast 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.