2 ‘strong buy’ stocks with a 7% dividend yield
You can take a whiplash, trying to keep up with market fluctuations these days. Volatility rules for now as investors are pulling out of big tech, a move that is pushing markets across the board down. The bearish sentiment comes as new COVID case numbers are dropping, along with weekly jobless claims. Both are positive news for the economy and will help justify further economic openness. At the same time, a congressional COVID relief package making its way through the legislative process promises a boost for consumer spending, and combined with a recent spike in oil prices, this makes market watchers think on inflation. The result: the 10-year US Treasury bond has yielded 1.48%, a one-year high. So investors’ money is being pulled out of stocks and into bonds. In general, it is a tailor-made situation for defensive actions. High-yield dividend plays are getting a lot of love from Wall Street stock analysts and are showing high upside potential as investors move toward them. These are the stocks that complete a portfolio, providing an income stream capable of offsetting the low appreciation of stocks. Using the TipRanks database, we have found two dividend sets that are yielding just over 7%. If that’s not enough, all three received enough support from Wall Street analysts to get a consensus rating of “Strong Buy.” Specialized Sixth Street Loans (TSLX) The financial sector is frequently a source of high-yielding dividend stocks, so it makes sense to look there. Sixth Street Specialty Lending is, as its name suggests, a player in the credit industry, where it is a provider of equity and credit financing for small and medium-sized businesses. These small and medium-sized businesses are the traditional engine of the American business sector, providing the majority of all jobs created, and specialized finance companies like Sixth Street are essential to their success. Over the past year, two trends have been clear in Sixth Street’s performance. First, the company showed a sharp drop in earnings when it hit the crown, followed by a sharp rally in 2Q20, with the EPS figure since falling back in line with historical norms. And second, the stock price has slowly but steadily recovered in value since bottoming out at the end of last March. A quick look at the numbers confirms it. TSLX showed a loss of earnings in the first quarter of last year, but the 79 cents per share reported in the fourth quarter, while down 34% sequentially, still increased 41% year-over-year. The stock has also recovered the share price, rising 112% from its lowest point of the ‘covid panic’. Sixth Street shares saw a momentary surge earlier this month when they announced fourth-quarter results, along with the latest dividend declaration. The company’s earnings and revenues met expectations, with management declaring a base dividend of 41 cents per common share, along with a special dividend of $ 1.25. Sixth Street has a history of using special dividends to supplement the base pay. At the current base rate, the dividend yields a solid 7.5%. Raymond James analyst Robert Dodd is impressed with Sixth Street’s overall performance but especially likes the dividend potential here. He writes: “With its recurring supplements, a great special, and an excessive base dividend gain, we believe TSLX is well-positioned to function in a market where it is increasingly difficult to find performance …” Dodd rates TSLX as an outperformance (i.e. Buy), and its $ 23.50 price target suggests room for 8% share growth in the next year. (To see Dodd’s track record, click here) Overall, it’s clear that Wall Street agrees with Dodd on the quality of Sixth Street – the stock has 5 recent reviews on record and they are all Buy, making the stock consensus rating of Strong Buy is unanimous. The stock is priced at $ 21.67, and its recent appreciation has left room for just a 6% rise below the average price target of $ 23. (See TSLX share analysis on TipRanks) Barings BDC, Inc. (BBDC) The next step is Barings BDC, a business development corporation. Like Sixth Street, Barings offers financial services to middle market companies. Barings’ services include access to capital as well as asset management, and the company invests in debt, equity and fixed income assets. The company had an investment portfolio worth $ 1.12 billion at the end of 3Q20, reported the last quarter. That last reported quarter also saw Barings beat earnings expectations. EPS of 17 cents was up 21% sequentially. Net assets from operations rose to 90 cents a share, a huge gain from the 10 cents reported in the same metric a year earlier. The company also showed $ 7.1 million in cash on hand at the end of the third quarter. Along with his secure financial situation, Barings has seen his stock recover the value lost when the coronavirus first hit. The stock reached its lowest point on March 18 of last year; since then, the shares have recovered 91%. That was all Q3. In the fourth quarter, Barings completed a merger with MVC Capital. The share deal will leave Barings shareholders with 73.4% of the combined entity (which will use the Barings name), while MVC shareholders will own the remaining 26.6%. The expanded Barings is expected to show $ 1.5 billion in assets under management; the 4Q20 report, to be presented in March, will give details. Barings’ dividend reflects the continued growth of the company. In the last two years, the administration has kept the quarterly dividend payment growing, from 3 cents per share to the 19 cents declared earlier this month for payment in March. At 19 cents per common share, the dividend yields 7.8%. In his note on Compass Point shares, analyst Casey Alexander showed his clear approval of the dividend announcement: “BBDC pre-announced an expected NII for 4Q20 of $ 0.19 per share versus our estimate of $ 0.16 and consensus estimates of $ 0.17. This was clearly due to the improvement of the earning power on the Barings platform … “In addition, Alexander sees that the company makes steady business profits, even without considering the MVC merger, and writes:” Aside from the acquired assets from MVC Capital, BBDC originated $ 528M new investment commitments during the quarter. These commitments were distributed among 24 new borrowers and 17 existing borrowers… ”Alexander’s optimistic comments are complemented by a Buy rating on the stock, and his target price of $ 10.25 implies a rise of 5% for the next 12 months. (To view Alexander’s track record, click here) This is another stock with a Strong Buy analyst consensus rating based on unanimous opinion; all three recent reviews are on the buyer side. BBDC shares are selling for $ 9.66 and the average price target of $ 11 suggests a one-year gain of 13%. (See BBDC’s Stock Analysis on TipRanks) To find good ideas for trading dividend stocks with attractive valuations, visit TipRanks Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock knowledge. Disclaimer: The opinions expressed in this article are solely those of prominent 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.