Every investor seeks to reap the rewards of their stocks; otherwise, they wouldn’t be involved in the markets. However, discovering the ideal investment, one that will yield profits, can prove to be a challenge, particularly in today’s market environment.
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To ensure solid returns, investors can follow two straightforward strategies. The first is to buy low and sell high. That is, find a cheap stock with sound fundamentals and good prospects for growth – and buy in to take advantage of the growth potential. The second strategy is to invest in dividend stocks, which provide regular payouts, allowing investors to earn returns on their investment.
Keeping these strategies in mind, we’ve used the TipRanks database to identify two stocks that offer dividends of at least 11% yield – that’s more than 6x higher than the average yield found in the markets today. Both of these stocks have received Buy ratings and have positive analyst reviews on record. And all that for a cost of entry below $10. Let’s take a closer look.
Great Ajax Corporation (AJX)
We’ll start in the world of REITs, real estate investment trusts. These are long-term champs among dividend stocks, using dividends as a mode to comply with regulatory requirements on direct profit shares with stockholders. The companies operate in the real estate industry, usually through the purchase, management, leasing, and control of various residential and commercial properties. In addition, REITs will also invest directly in mortgages and mortgage-backed securities of various types.
Great Ajax is typical of the latter type, and holds a portfolio focused on mortgage loans in the residential market, secured by single-family residences and single-family properties. The company also invests in loans secured by larger properties, including multi-family residential tracts and commercial mixed-use properties that include both retail and residential segments.
In the most recent quarterly report, Great Ajax reported that 81% of the portfolio had made all 12 of the last 12 payments. That figure is an improvement from the 79% recorded in each of the last two quarters, and reflects quality in the customer base.
While the customer base is solid, the company generated net revenue of only $540,000 in 1Q23, coming in below forecasts by $6.3.million. On earnings, the 9-cent non-GAAP EPS loss was 14 cents worse than had been expected.
On the dividend, Great Ajax declared its last payment on May 4, for 20 cents per common share, and made the payment on May 31. The 20-cent dividend represents a 20% cut from the previous quarter. At the current forward annualized rate of 80 cents per common share, the dividend is yielding 13.8%.
Analyst Matthew Howlett, of B. Riley, proposes an explanation for Great Ajax’s recent poor financial performance, explaining that the stock’s idiosyncratic cycle runs counter to the current interest rate cycles. He writes of the stock, “Our key message to investors is do not expect much earnings in 2023 as the interest cycle plays out and AJX remains on the sidelines. However, we believe the forward outlook beyond 2024 is attractive. We continue to view AJX as a ‘counter-cyclical’ mortgage REIT and we expect its growth prospects to improve in an environment with more distress in the mortgage world… Trading at approximately 0.37x our estimated economic book value of $15 (vs. 0.63x for the credit mREIT peer group), we believe AJX remains a deep-value play.”
Howlett does view the stock as a compelling value, and rates the shares as a Buy, with a $10 price target to suggest a one-year gain of ~71%. Based on the current dividend yield and the expected price appreciation, the stock has ~85% potential total return profile. (To watch Howlett’s track record, click here)
Even though this stock is down, Wall Street is bullish. All 4 of the recent analyst reviews are positive, for a Strong Buy consensus rating on the stock. The current trading price is $5.85 and the average price target of $9.50 implies an upside of 62% on the one-year time frame. (See AJX stock forecast)
Piedmont Office (PDM)
The second high-yield dividend stock on our list is another REIT, Piedmont Office. This company focuses its portfolio development on the ownership and management of high-end, Class A office buildings in the high-growth Sunbelt region, particularly the cities of Orlando, Atlanta, and Dallas. The company also has properties and operations on the East Coast, in Washington DC, New York, and Boston, and in the Midwestern city of Minneapolis. Piedmont looks for a combination of positive economic and demographic growth trends that will support long-term appreciation in property value.
Piedmont takes a pro-active stance on expanding its portfolio, and holds ownership of six land plots zoned for future commercial development. These plots, located in Atlanta, Dallas, and Orlando, total more than 3 million square feet and are already zoned for office, retail, and hotel use. The company refers to these holdings as its ‘land bank.’
In its last quarterly report, for 1Q23, Piedmont reported a net loss of $1.37 million, or an EPS of negative $0.01 per share. These values were down sharply from the $59.96 million net gain, or 49-cent positive EPS, reported in 1Q22, but were in-line with analyst expectations. It’s important to note that the year-ago results included proceeds from real estate sales, to the tune of $50.7 million, a factor absent from the last report.
Of particular interest to dividend investors, Piedmont reported funds from operations (FFO) of 46 cents per share. While down 5 cents year-over-year, this was more than enough to maintain the company’s dividend payment, currently set at 21 cents per share. The dividend was last paid out on June 16, and its 84-cent annualized rate gives a yield of 11.5%. The company has held its regular quarterly dividend steady at this rate since 2014.
Truist analyst Michael Lewis sees this company’s improvable rent spreads and high current portfolio occupancy rate as more important than modest growth predictions in the core market areas. Lewis says of Piedmont, “We expect only slightly positive market rent growth in each of PDM’s markets over the next two years, but still project mid-double-digit positive GAAP rent spreads for PDM this year and around +10% next. We believe portfolio occupancy (commenced leased percentage) should improve the next couple of quarters until Cargill (Private) expires at the end of the year.”
Looking ahead, Lewis gives PDM stock a Buy rating and maintains his $14 price target, which indicates room for a robust 92% one-year upside potential. (To watch Lewis’ track record, click here)
Looking at the consensus breakdown, 2 Buys and 1 Hold add up to a Moderate Buy analyst consensus. The average target of $11.17 implies an upside of ~52% from the current trading price of $7.34. (See PDM 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.
