Stock Analysis & Ideas

These 3 Dividend Stocks Are a ‘Buy’ in This Highly Volatile Environment, Say Analysts

This past March, the Federal Reserve instituted its first interest rate hike since 2018, marking a major change in monetary policy. The conventional wisdom had been expecting such a move, and the magnitude – just 25 basis points – was modest. The idea that the Federal Reserve will be shifting policy to combat a serious inflation problem has apparently been ‘baked in’ to our collective expectations.

Or has it entirely? The most recent data on US inflation, for February of this year, shows a 7.9% annualized rate. Not only is that the highest in 40 years, it’s also still accelerating – January’s rate of 7.5% annualized, while the February 2021 rate was only 1.7%. These numbers, and worries about what the March numbers – due out this week – will look like, brought a renewed focus on the Fed, which in recent days announced the reversal of its long-standing quantitative easing policy.

That means the end of the easy money terms that have fueled the stock market expansions of the last several years. Instead of creating new dollars, the Fed will begin contracting its balance sheet, to the tune of $1 trillion annually. Even at that rate, it will take nearly a full decade for the Fed to work off its $9 trillion surplus.

In an environment like this, with uncertainty building behind a wall of fog, the only sure bet is for more volatility. Last week, the S&P fell 1.3%, for its first weekly loss in nearly a month; the NASDAQ fell further, by 3.9%. Both indexes remain down for the year-to-date.

The increased market fluctuations of the last few weeks has analysts and investors alike starting to look at dividend stocks. These are the classis defensive plays, taken to protect the portfolio in a time like this. We’ve used the TipRanks database to pull up the details on three reliable dividend payers that have all gotten recent ‘thumbs up’ from the Street. Let’s take a closer look.

DCP Midstream Partners (DCP)

We’ll start in the energy industry. While the Biden Administration has been working assiduously to de-emphasize fossil fuels, the fact remains that oil and gas are – and well remain for the foreseeable future – the mainstay of the energy sector. DCP is a midstream company, one of the many firms that moves hydrocarbon products from wellhead to the market. DCP’s portfolio is broad and diversified, with assets in gathering, processing, transporting, and marketing natural gas and natural gas liquids.

In the company’s most recent quarter, 4Q21, DCP reported a net income of $315 million, up a hefty 266% from $86 million in the year-ago quarter. Per share, the increase was just as impressive; EPS jumped from 34 cents in 4Q20 to $1.44 in 4Q21 – gain of 323%. The company’s top line of, $3.23 billion, was up 81% year-over-year.

These weren’t the only gains that DCP claimed. The company is benefiting from rising fuel prices, and its investors are reaping those benefits. DCP’s distributable cash flow, which funds the dividend, rose from $178 million one year ago to $219 million in this most recent quarter.

That dividend was declared, at the end of January, at 39 cents per common share. This annualizes to $1.56, and gives a yield of 4.5%. The company has a history of reliable dividend payments – never missing a quarter – going back to 2006.

All of this has Evercore analyst Todd Firestone bullish on this midstream company. He writes, “Our upgrade is based primarily on i) group leading commodity exposure as Y-bbl pricing and record frac spreads clearly favor DCP, ii) valuation, and iii) returns messaging. These themes should remain attractive to investors looking to enter the space whether as newcomers, or re-entering, the post-COVID DCP is not your dad’s MLP from 2017, in our view.”

These comments support Firestone’s Outperform (i.e. Buy) rating, while his $42 price target implies an upside of 26% for the year ahead. (To watch Firestone’s track record, click here)

This reliable dividend payer has a unanimous Strong Buy consensus rating, based on 7 analyst reviews. The shares are priced at $33.25 and the $40.57 average price target suggests an upside of ~22% this year. (See DCP stock forecast on TipRanks)

BRT Apartments Corporation (BRT)

Now we’ll shift gears, and move on to a REIT. These real estate ownership and management companies are well known as ‘dividend champs’ of the stock market – federal tax regulation requires that they return a high percentage of profits directly to shareholders, and they frequently use dividends as the instrument for that return. BRT, which holds a portfolio of multifamily dwellings mainly across the US Sunbelt region, is typical of its niche. BRT’s portfolio currently includes 32 properties in 11 states, and totals 8,985 apartment units.

As 2021 came to an end, BRT reported a Q4 net loss of 8 cents per share. This was an improvement from the year-ago quarter, when the net EPS loss came in at 19 cents. For the full year, BRT was profitable, reporting EPS of $1.62.

The metric of most interest to us here, however, is the funds from operations (FFO). This is the cash flow that backs up the company’s dividend – and in 4Q21 it was 35 cents per share, up from 29 cents one year prior. This was more than enough to cover the dividend payment, which in March was declared at 23 cents per common share. With an annualized rate of 92 cents, the dividend currently yields 4%.

5-star analyst Craig Kucera, from investment firm B. Riley, sees this company holding a sound niche in the REIT sector – and better yet, he notes that JV asset sales and consolidation make BRT a must-watch name.

“We believe BRT’s strategic shift to harvest an increasing amount of value from its unconsolidated multifamily portfolio through both assets sales and consolidation should lead to a better multiple in shares as JV disposition proceeds (with sizable gains) are utilized to reduce leverage and simplify BRT’s ownership interest structure. Given elevated SS NOI growth and better G&A scaling through asset consolidation, we are raising our 2022E FFO from $1.15 to$1.30, while establishing a 2023E FFO of $1.35,” Kucera noted.

Kucera, in light of these comments, rates BRT stock a Buy, and his $29 price target suggests a one-year upside potential of ~29%. (To watch Kucera’s track record, click here)

Other analysts don’t beg to differ. With 4 Buy ratings and no Holds or Sells, the word on the Street is that BRT is a Strong Buy. BRT’s share price of $22.68 and average price target of $28 give the stock a 12-month upside of ~23%. (See BRT stock forecast on TipRanks)

Realty Income Corporation (O)

Last up is another REIT. Realty Income is one of the market’s best dividend payers, and backs up the payments with a huge portfolio: more than 11,100 commercial real estate properties. Realty’s properties are subject to long-term net-lease agreements, and the company lets them out to over 1,000 clients. Realty has properties in all 50 states, plus Puerto Rico, the UK, and Spain.

In its last quarterly release, for 4Q21, Realty Income showed a net EPS of 1 cent – but the full year result was stronger, at 87 cents. The company’s quarterly FFO rose more than 7% year-over-year, to reach 89 cents per share – more than enough to fund the dividend.

That dividend deserves a closer look, as it is one of the market’s most reliable. Realty Income has maintained it for over 50 years – going back to the company founding in 1969 – without ever missing a monthly payment. In that time, the company has made 620 dividend payments, and 98 consecutive quarterly dividend increases. The most recent dividend, declared in March for an April 15 payment, was for 24.7 cents per common share. This annualizes to $2.96, and gives a yield of 4.1%.

In coverage for investment firm Wolfe Research, analyst Andrew Rosivach writes of Realty Income: “We believe O, with only 2.7% and 5.1% of leases rolling in 2022 and 2023 respectively and 43.7% of rents from investment grade tenants, would rapidly become a ‘must own’ stock in an inflationary scenario. Please note, O fell only 14% in 2008, outperforming the REIT index by ~2,700 basis points in that year. Indeed, in a recession, O’s lack of rent mark to market highlighted above could turn from a negative to a positive.”

Rosivach’s comments back up his Outperform (i.e. Buy) rating, while his $84 price target indicates room for a one-year upside of ~17%. (To watch Rosivach’s track record, click here)

All in all, this stock gets a Moderate Buy consensus rating from Wall Street, based on 10 analyst reviews that include 7 Buys and 3 Holds. (See Realty Income stock forecast on TipRanks)

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

Tired of arriving late to the Big Returns Party?​
Most investors don’t have major gainers like TSLA or NVDA on their radar from the start.
The profusion of opinions on social media and financial blogs makes it impossible to distinguish between real growth potential and pure hype.
​​For the past decade, we have developed and perfected technology designed to help private investors, just like you, find the best opportunities, with the greatest upside potential, in any financial climate.​
Learn More