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2 Buy-Rated Dividend Stocks Yielding at Least 7% (With Solid Upside to Boot)

The stock market might be at a crossroads once again. In recent weeks, we’ve seen some solid gains, mostly across the board, as a rally has taken hold and moderated year-to-date losses on the major indexes. But is this rally running out of steam?

Taking the bearish view of the current environment is Morgan Stanley’s chief US equity strategist Mike Wilson. He sees the gains right now as a bear market rally, and believes that markets will likely turn down again in the longer term. Laying out his position, Wilson writes, “The message from us for the next several months remains: risk/reward is unattractive, and this bear market remains incomplete.”

Shifting his focus to the Fed’s likely actions, Wilson continues: “While inflation appears to be peaking, it's not likely to come off at a pace fast enough to spur the type of sustained Fed pause the equity market is already discounting. Easing financial conditions and a strong July labor report likely further dampen the prospects for a more dovish policy path.”

This sort of warning signals it is time for some defensive plays, and this will naturally bring us to dividend stocks. These are the stocks which will ensure a steady income no matter the day-to-day market swings and protect the portfolio against any incoming volatility.

Bearing this in mind, we used the TipRanks' database to zero-in on two stocks that are showing high dividend yields – on the order of 7% or more. According to Wall Street analysts, both of these stocks could generate a combination of considerable capital gains and dividend income – making them a potential double-fisted payday for investors.

Plains All American Pipeline (PAA)

We’ll start with Plains All American, one of North America’s major energy industry midstream companies. These firms exist between the wellheads and the customers, moving crude oil, natural gas, and natural liquids from the wells to the transport hubs, storage farms, and refineries that make up the physical network infrastructure of the oil industry.

Plains All American has a wide-ranging web of crude oil and natural gas liquid transport assets, including some 18,300 miles worth of pipelines, storage tanks, and terminal facilities, spread across North America from the Rockies of Alberta to the Gulf Coast, to Southern California, the Great Lakes, and the Chesapeake Bay. Plains also counts mobile assets in its portfolio, with title to over 2,100 trucks and trailers and approximately 6,000 petroleum tankers and NGL cars for railroad traffic.

A network that size is Big Business, with capital letters. Plains boasts a market cap higher than $8 billion, and saw nearly $30.1 billion in total revenues for 1H22. The company’s top line has been rising steadily since 2Q20, boosted by the post-COVID return to more normal business and the sharp increases in hydrocarbon prices. 2Q22 revenues came in at $16.35 billion, for a 67% year-over-year gain. Rising revenues have supported strong earnings, and the recent Q2 bottom line came in at 22 cents EPS, a steep turnaround from the 37-cent EPS loss posted in the year-ago quarter.

Plains also has a sound cash position, with $792 million in net cash from operations in 2Q22, and a cash asset stash of $6.66 billion as of June 30, up ~9% over the past 6 months.

The company’s solid financial results allow for a generous dividend. Plains pays out 21.75 cents per common share, which annualizes to 87 cents and gives a yield of 7.4%. This yield is more than triple the average dividend found among S&P-listed firms.

Looking at Plains for Stifel, analyst Selman Akyol gives an upbeat take on the broad picture: "As one of the largest transporters of Permian crude, Plains should be well positioned to capture incremental volumes over the next several years. Furthermore, we believe PAA’s JV with Oryx should allow for additional secured barrels to flow on PAA’s long haul pipes longer-term. Plains’ financial profile has improved considerably over the past couple years and recently increased its distribution by ~20%. Moving forward, we continue to expect PAA to generate significant FCF which will aid in returning incremental capital to stakeholders."

Everything that Plains has going for it prompted Akyol to rate the stock a Buy. The cherry on top? His $16.00 price target implies ~37% upside from current levels. Based on the current dividend yield and the expected price appreciation, the stock has ~44% potential total return profile. (To watch Akyol’s track record, click here)

Overall, Plains has a Moderate Buy rating from the analyst consensus, based on an even split of 4 Buys and 4 Holds set in the last few weeks. The company’s stock sells for $11.72, and its $14.31 average price target indicates a possible 22% one-year upside. (See PAA stock forecast on TipRanks)

Granite Point Mortgage (GPMT)

The energy industry isn’t the only place to look for great dividends and share returns, though. Investors can also find these in the world of real estate investment trusts (REITs). Granite Point Mortgage operates in the commercial mortgage sector, where it originates loans and debt for commercial real estate investors. The company focuses on generating sound, risk-adjusted, long-term returns for shareholders, mainly through dividends.

The dividends needs a firm foundation, so before we look at them we should look at the company's quarterly financial releases. Granite Point saw $49.3 million at top line in 2Q22 – mainly in interest income from loans-held-for-investment, but also including some cash income – which was roughly flat from the $49.4 million in the year-ago quarter. This supported a total distributable earnings of $11.7 million, or 22 cents per common share. The company ended 2Q22 with come $150 million in cash on hand.

These assets – revenues, distributable earnings, and liquid cash – supported a common share dividend of 25 cents per share, which was last paid out on July 15. At that rate, the dividend has an annualized payment of $1 and yield of 10%. Not only is this dividend 4x higher than the market average, it is also higher than the current year-on-year rate of inflation, ensuring investors a real rate of return from this stock.

Now moving to Wall Street, GPMT has attracted the attention of 5-star analyst Stephen Laws, from Raymond James. The analyst likes what he sees here, and notes that the Federal Reserve’s interest rate hikes will likely impact Granite Point positively in the near-term.

“We expect distributable earnings in 2H to remain near 2Q levels before increasing in 2023 as earnings benefit from increasing interest rates, increased origination activity, and replenishing repayments in the CLO with newly originated, wider spread loans. We are maintaining our Outperform rating given our outlook for distributable earnings growth in 2023 and the attractive risk-reward with shares currently trading at ~65% of book value and an annualized yield of ~10%," Laws opined.

Laws' Outperform (i.e. Buy) rating comes with a $13.50 price target, suggesting GPMT has room to grow ~35% in the year ahead. (To watch Laws’ track record, click here)

Overall, all three of the recent analyst reviews on this stock are positive, making the analyst consensus rating a Strong Buy. The shares are currently trading for $10 and their average price target of $13.25 implies a potential one-year gain of ~33%. (See GPMT stock forecast on TipRanks)

To find good ideas for dividend 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.