Dividend stocks are always popular with investors, and it’s no secret why. A reliable dividend provides a steady income stream even when times are hard and markets turn down, protecting investors from losses due to share depreciation.
Finding the right dividend stock, however, is the real trick. Yields average only about 2%, and some of the market’s stalwart stocks yield less than 1% (Apple and Microsoft come to mind). But high-yielding dividend stocks, with reliable payments, are out there – even during these corona crisis times.
Top analysts from investment bank JPMorgan have been focusing their gaze on some likely candidates for income investors’ interest. Using the TipRanks database, we’ve pulled the details on three of JPM’s dividend stock picks, to find out just why they’re such compelling choices.
Hess Midstream Operations (HESM)
We'll start in the energy industry, with Hess Midstream. When you think of the hydrocarbon sector, it’s normal to focus on the wells that extract the oil and gas – but that would come to nothing without the midstream companies. These companies, like Hess, have the assets and infrastructure to gather, process, store, and transport crude oil and natural gas products from the wells to the refineries to the final point of sale. Hess operates in the famous Bakken Formation, which put the Dakotas on the map at the start of the US fracking boom.
The coronavirus quarter has been difficult for Hess, but the company has been able to adapt. Q1 saw EPS rise 25% sequentially to 35 cents. This was derived from net income of $129 million.
Even better for investors, Hess has strong prospects going forward. Throughput on gas processing, gas gathering, crude oil gathering, and crude oil terminaling are all up. The company also boasts a high rate of minimum volume commitments, which have protected some 975 of revenues going forward.
All of this put Hess is a solid position to raise its dividend. The company has raised its dividend every quarter for the past three years, and the most recent increase, of 1.2%, raised the payment to 43.1 cents per share. At $1.72 annualized, this gives HESM dividend an impressive 9.2% yield.
JPMorgan analyst Jeremy Tonet notes Hess’s earnings success. He is more impressed with the company’s ability to keep up its business volumes, writing, “HESM's crude oil gathering, gas processing, and terminal volumes beat our expectations, while natgas gathering volumes matched."
"We believe that investors will be encouraged by: (1) HESM reaffirming 2021 EBITDA growth guidance of 25%, (2) MVCs protecting 97% of 2H20 revenues, and (3) the low end of the new guidance assuming effectively zero third-party activity for the remainder of the year, which we believe is conservative. Additionally, HESM reaffirmed March capex guidance of approximately $275mm for 2020, and $100mm for 2021,” the analyst added.
Tonet rates HESM shares a Buy, and his $23 price target implies an upside of 30% from current levels. (To watch Tonet’s track record, click here)
The analyst consensus on HESM is a Strong Buy, based on a 3 to 1 split between Buy and Hold ratings. Shares are selling for $18.71 and the average price target of $17.60 suggests the stock has room for 12% growth. (See HESM stock analysis on TipRanks)
MGM Growth Properties (MGP)
From energy, we move to real estate. Specifically, to real estate investment trusts. These companies, which own, operate, or invest in real properties and/or mortgages and mortgage-backed securities, are structured by tax statutes to return a high percentage of their earnings directly to shareholders. This makes them perennial dividend champs, as that is the usual mode of return.
MGM Growth Properties owns a portfolio of entertainment destinations, 13 properties in 8 states. MGM’s properties are mainly casinos and luxury hotels. The company boasts over 27,000 rooms in its hotels, and saw revenues of $881 million last year. The luxury nature of the properties helped MGM survive the ‘coronavirus quarter.’ The company saw a 3.4% sequential decline in earnings, to 56 cents per share, but in Q2, the company has shored up its liquidity position with an offering of $800 million in senior notes due in 2025.
Better yet, for dividend investors, MGM declared its Q2 dividend earlier this month, including an increase in the payment to 48.8 cents per share quarterly. This makes the sixth dividend increase for MGM in the past three years. The current annualized rate is $1.95, and gives a yield of just over 7%.
Covering this stock for JPM is 5-star analyst Joseph Greff, who writes of the company’s prospects in restarting operations going forward: “While MGP expected to see pent up demand following a period of closures, performance at recently reopened properties has exceeded their expectations... Additional re-openings will likely depend on demand and which segments come back first/strongest rather than creating a cluster of properties.”
In line with his outlook, Greff gives MGP shares a Buy rating. His $31 price target implies a one-year upside potential of nearly 15%. (To watch Greff’s track record, click here)
Wall Street is in agreement with Greff, as indicated by the Strong Buy rating from the analyst consensus. This rating is based on 10 reviews, including 9 Buys and just a single Hold. Shares in MGP are selling for $27.04, and the average price target of $31.10 suggests the stock has room for 15% upside growth this year. (See MGP stock analysis on TipRanks)
Gaming and Leisure Properties (GLPI)
Last on our list today is another REIT, also in the gaming industry. Gaming and Leisure Properties owns and operates 43 casino properties spread across 17 states. The company came into 2020 – and the corona crisis – on the heels of 5 years of steady share gains, and saw further gains during January.
Those gains came to a halt in February, when the viral outbreak and the economic shutdowns brought casino business to a halt. GLPI shares joined the general market fall, and are still down over 24% from their February peak. Despite the heavy share price losses, GLPI was able to beat the Q1 earnings estimates by more than 2%, reporting EPS of 88 cents. During the second quarter, GLPI conducted a $500 million pricing of 4% senior notes, to be due in 2031. The offering shores up the company’s liquidity position and allows it to reduce interest payments going forward, sound moves in the current climate.
Also in a move to keep liquidity strong, GLPI reduced its dividend payment in the Q2 declaration. After paying out 70 cents per share in Q1, the company is paying 60 cents per share in Q2. This gives an annualized payment of $2.40, or a yield of 6.7%, a strong return by any standard.
Joseph Greff also analyzed GLPI for JPM. In his note at the beginning of May, Greff wrote, “We have a favorable view of GLPI taking practical steps to work with its tenants on rent relief, and while we do view GLPI’s decision to reduce the quarterly dividend to $0.60 … as unfortunate, we view this as temporary and believe it will work itself out over time.”
In line with his favorable view, Greff rated the stock a Buy. His price target, set in early May, was $29 – and the stock has already shown the wisdom of his comment above by powering through that target to trade above $35 now. (To watch Greff’s track record, click here)
GLPI is another stock with a Strong Buy analyst consensus, this one based on 8 Buy reviews and 1 Hold. The stock is currently selling for $35.52, and the average price target of $36.38 suggests a modest potential upside. Expect Wall Street’s analyst to revisit their targets on GLPI in the near future. (See GLPI stock-price forecast on TipRanks)
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