Do you love dividends? Of course you do — and rightly so!
Scholars who study the stock market’s historical performance estimate that over time, the payment (and reinvestment, and compounding) of dividends have contributed anywhere from 30% to 90% of the S&P 500’s total returns. Simply put, if you’re not investing in dividend stocks, you’re doing it wrong.
Using the TipRanks platform, we’ve looked up two stocks that are offering dividends of at least 10% yield – that’s almost 6x higher the average yield found in the markets today. Each of these is Buy-rated, with some positive analyst reviews on record. Let’s take a closer look.
Crestwood Equity Partners (CEQP)
We’ll start in the energy industry, with Crestwood Equity Partners. The energy sector is known for dripping cash, and energy companies frequently use that cash to fund generous dividend payments. Crestwood is one of those dividend payers. The company, which is a midstream operator, has a widespread network of assets, located in several of the richest oil and gas production regions of the continental United States.
Those assets include gathering, processing, storage, and terminal facilities, plus trucks and rail cars for transport, in the Williston, Delaware, and Powder River basins. The company also has operations in the Carolinas, in Florida, and in Mississippi and Missouri. Crestwood has three main operating segments, including Gathering & Processing North, Gathering & Processing South, and Storage & Logistics.
Since May of last year, Crestwood has been streamlining its operations through a series of strategic divestiture and acquisition moves. The company shed some of its non-core assets, including gas operations in the Marcellus Shale and its legacy network in the Barnett Shale. This allowed the company to focus its resources on expanding its Delaware Basin plays, doubling its natural gas activities in that region.
Crestwood posted mixed results in its recently reported results for 1Q23. The company showed quarterly revenues of $1.26 billion, down 20% year-over-year and missing the forecast by $40 million. The firm’s GAAP income, at 15 cents per share, however, was up from a 4-cent EPS loss in 1Q22, and came in 5 cents better than expected.
Of particular interest to dividend investors, Crestwood’s distributable cash flow (DCF) for Q1 came to $103.6 million. This was down from $116.7 million in the prior year quarter – but it was more than enough to cover the company’s distributions to common shareholders, which were reported at $69 million.
Those distributions were made through a 65.5 cent per commons share dividend, which was paid out on May 15. The annualized payment, of $2.62, gives a strong yield of 10%.
Among the bulls is Truist’s 5-star analyst Neal Dingmann who takes an upbeat look at Crestwood.
“We believe Crestwood will benefit from the fruits of its relatively recent strategic M&A with near-term upside already evident by the better than expected new wells connected last quarter. Further through notable incremental near-term, the company is quickly making up any lost ground caused by last year’s storms and other issues,” Dingmann opined.
“We continue to believe the Williston and Delaware remain two of the key regions where incremental infrastructure will be necessary to continue planned operations. We forecast CEQP to hit in the coming quarters their 3.5x leverage goal, which will open up more shareholder return opportunities,” the analyst added.
Going forward, Dingmann expects the stock to hit $30 per share in the next 12 months, resulting in a 13% gain. Based on the current dividend yield and the expected price appreciation, the stock has ~23% potential total return profile. This projection justifies Dingmann’s Buy rating on the stock. (To watch Dingmann’s track record, click here)
Overall, the Street’s analysts are giving CEQP shares a Strong Buy consensus rating, based on 6 reviews that include 5 Buys against just 1 Hold. The shares are currently trading for $26.69 and their $29.83 average price target implies an upside of ~12% in the next 12 months. (See CEQP stock forecast)
SFL Corporation (SFL)
Now we’ll shift from the energy sector to oceanic cargo hauling, another class of stocks long-known as dividend champs. SFL Corporation is a major player on the world’s sea lanes of communications, and operates a fleet of 74 vessels, mainly cargo carriers. The company’s ships include bulk haulers, oil tankers, container ships, and car carriers, and range in size from relatively modest 57,000 ton bulk carriers to a 308,000 ton VLCC, or very large crude carrier. SFL has a history of selling older ships and reinvesting the proceeds into newer vessels, in order to maintain a modern fleet.
A fleet of that size, and diversity, allows SFL to deal in almost any cargo imaginable, and the firm’s ships are found on all of the world’s major oceanic trade routes. The company’s ships are operated mostly on long term fixed charters, giving stability to both the revenue stream and the operating costs. SFL is one of the world’s largest ship owning companies, and has been publicly traded since 2004. The company has paid out a dividend in every quarter since going public.
SFL’s operations are frequently booked years in advance, and the company has a substantial charter backlog. In the last financial report, for 1Q23, the company noted that two of its car carriers had their contracts extended for three years, which added some $155 million to the backlog, and that Hercules, an ultra-deepwater drilling rig currently in Namibia, had a new contract for four years, increasing the backlog by approximately $50 million.
Also in the 1Q23 report, the company showed a net profit of $6.3 million, which came to 5 cents per share. This EPS figure was 10 cents below the forecasts. Despite missing on earnings, the company kept up its policy of shareholder capital returns, through both buybacks and dividends. SFL management announced a buyback policy totaling $100 million, and declared a cash dividend of 24 cents per common share. The dividend is scheduled for payment on June 30; at its current rate, it annualizes to 96 cents per share and yields 10.3%.
All of this has caught the attention of BTIG analyst Gregory Lewis, who says: “Over the last year, SFL has paid out 30%-60% of quarterly OCF as dividends, suggesting that SFL has ample room to raise its dividend over time… SFL continued renewing its fleet in 1Q, with agreements to sell a Suezmax and two chemical tankers for a combined ~$63M. All three vessels had been trading in the spot market. In Q2 SFL sold another uncovered Suezmax, generating ~$41M in proceeds that can be recycled into newer vessels. Bottom Line: SFL continues to execute on its portfolio strategy, favoring a diverse fleet with high contract coverage that can support dividend growth through stable cash flows.”
To this end, Lewis rates SFL shares a Buy and gives them a $13 price target, suggesting ~39% upside on the one-year horizon. (To watch Lewis’ track record, click here)
SFL appears to be flying under the Street’s radar and currently Lewis’ is the only current analyst review for this stock, which is trading for $9.32. (See SFL stock forecast)
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.
