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2 “Strong Buy” Dividend Stocks With at Least 7% Dividend Yield

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We’re facing a maelstrom of conflicting currents in the markets today, with a series of headwinds running head-on into each other. Consumer sentiment is low – in fact, at the lowest levels ever recorded, with 79% of consumers expecting economic conditions to get worse in the coming year. Inflation is high, at levels not seen since 1981, and is expected to remain elevated through the end of 2023. Fuel prices are major driver with the national average for a gallon of gasoline exceeding $5. The housing market is starting to stutter, and Q1 showed a GDP contraction. If Q2 shows the same, the US will be in a technical recession.

All of this, and more, informs the UBS Chief Investment Office strategists, in their recent note on market conditions and what to expect in the near-term. “Investors will need to see compelling evidence that inflation is cooling before we see a turnaround in market sentiment, in our view... We see less upside for equities this year, and we recently lowered our year-end projections for the S&P 500 to 3,900," the strategists wrote.

A market environment like this practically screams out for investors to take defensive action – and that will naturally get them looking at dividend stocks. Reliable, high-yield div payers will provide a steady income stream, guaranteeing a return even when stock markets turn down, and even if the bear market is deeper than expected.

With this in mind, we've used the TipRanks database to pinpoint two stocks that match a solid defensive profile: a Strong Buy from the analyst’s collective wisdom and a dividend yield of 7% or more. Let's take a closer look.

Plains All American Pipeline (PAA)

We'll start with one of the major midstream companies in the North American energy sector. Plains All American Pipeline, or just Plains as it is known, boasts a $7.35 billion market cap and an 18,300 mile pipeline network for crude oil and natural gas liquids (NGL). The company’s network stretches along the Rocky Mountains from northern Alberta to Colorado, thence south through Kansas, Oklahoma, and Texas to the Gulf Coast, and up the Mississippi from Louisiana into Illinois. The company also has hydrocarbon storage and terminal facilities in the Great Lakes and Chesapeake Bay regions, as well as Southern California.

All told, in addition to the pipelines, Plains’ network includes more than 2,100 trucks and trailers, 6,000 crude oil tankers and NGL railroad cars, and more than 140 million barrel-equivalents of storage capacity. This is big business, and Plains saw a total of $42.6 billion in revenues last year.

The high revenue has continued into 2022, supported by rising prices in the oil and gas markets. Plains reported $13.7 billion at the top line in 1Q22, up 63% from the $8.4 billion reported in the year-ago quarter. Despite the gains in revenues, cash flow was down. Net cash from operations fell 57% year-over-year, to $340 million, and free cash flow was down even further, by 71%, to $200 million. Earnings also fell y/y, from 51 cents per diluted share to 19 cents.

The drop in cash flow and earnings, however, did not stop the company from bumping up the dividend distribution. Plains raised its dividend by 21% in Q1, from 18 cents per common share to 21.75 cents, marking the first increase in the payment since April of 2020, when it was slashed in response to the COVID crisis. At the new rate, the dividend annualizes to 87 cents per common share and gives a robust yield of 8.55%.

In his coverage of Plains for Credit Suisse, analyst Spiro Dounis notes three key points driving the company’s success: "(1) PAA now boasts one of the most compelling valuations on several metrics. (2) Permian growth is mitigating re-contracting risk. (3) We expect accelerated capital returns in 2023 as PAA reaches its leverage targets."

Dounis also takes particular note of the dividend – and determines that the company is in a solid position to increase it going forward. He writes, “PAA’s current dividend + buyback yield is ~9% and we expect that figure to increase in 2023. We estimate ~$0.9bln in FCF after Distributions (FCFaD) in ’23. Allocating 50% of that amount would still reduce leverage by 0.2x. The remaining $450mm represents 6% of the market cap and could be allocated to a combination of the dividend/buyback program."

Considering that the company is profitable and pays out an above-inflation return, Dounis gives the stock an Outperform (i.e. Buy) rating, and sets his price target at $14 – which suggests ~35% upside for the coming year. Based on the current dividend yield and the expected price appreciation, the stock has ~44% potential total return profile. (To watch Dounis’ track record, click here)

Overall, there are 8 recent analyst reviews on record for PAA stock, and it’s clear from the 7 to 1 Buy/Hold ratio that Wall Street is bullish on its prospects, to the extent of a Strong Buy consensus rating. The stock is currently priced at $10.37 and its $13.88 average price target implies a 12-month gain of 34%. (See PAA stock forecast on TipRanks)

CTO Realty Growth (CTO)

For the second dividend stock we’ll turn to the real estate sector, an area long known for its generous dividends. CTO Realty Group is real estate investment trust, owning and managing a portfolio of income-generating properties across 9 states. The company is based in Florida, and its properties are located in the South and Southwest – from Florida up to Virginia, and from Texas out to Nevada. CTO’s holdings include 21 retail and commercial properties totaling more than 2.8 million leasable square feet.

CTO released its 1Q22 earnings this past April, and reported mixed results. Total revenues came in at $17.2 million – compared to the $14.7 million in 1Q21, this was a 17% gain. Earnings, however, were negative. EPS fell from a $1.32 profit in the first quarter last year to a 17-cent per share loss in the current report.

Even though results were mixed, the company is clearly confident in the future, as shown by the dividend policy. CTO raised the dividend 8% in Q1, from $1 to $1.08 per common share. And better yet, for investors, the company has raised it again in the Q2 declaration. The new payment is $1.12 per common share, up 3.7% from Q1 and annualizing to $4.48. At that rate, the dividend will give a strong yield of 7.3%. This is more than 3x the average yield found among S&P-listed firms right now.

5-star analyst RJ Milligan, covering CTO for Raymond James, sees reason for optimism on this stock. He writes, "CTO’s high-quality portfolio of retail and mixed use assets has seen a significant transformation over the past several years through asset recycling and external growth. The portfolio today boasts strong demographics and a concentration in higher growth markets including Atlanta, Jacksonville, Dallas, Raleigh, and Phoenix."

"As the company wraps up its transformation (selling several office and single-tenant properties, andselling its non-income producing assets), we expect the further simplified story will produce a higher-quality earnings stream, deliver outsized growth, and gain incremental institutional traction, which should be reflected in a higher share price," the analyst added.

Those comments come along with an Outperform (i.e. Buy) rating and a $69 one-year price target on the stock, suggesting a 12% upside potential. (To watch Milligan’s track record, click here)

This stock has been public for about 18 months, and in that time has picked up 3 analyst reviews. These are all in agreement on the bullish side, giving CTO a Strong Buy analyst consensus rating. The stock’s current share price is $61.45 and its average price target is $73.67, indicating room for ~20% upside potential in the next year. (See CTO 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.