These dividend stocks tick both boxes: a very high yield and a bullish outlook from the Street. This is pretty crucial as not all dividend stocks make appealing investing propositions. Looking for those with a bullish analysis from the Street is one way to sort the wheat from the chaff.
We’ve used the TipRanks' Stock Screener tool to pick out three buy-rated stocks with dividends exceeding 7%. This puts their yield 3.5x higher than the S&P average of 2.1%, and makes them a sure source of income of return-minded investors. The stocks come from the real estate investment trust and energy sectors, two segments of the market that have – for different reasons – developed a reputation for high-yield dividend returns.
“A commitment to a dividend can indicate a strong business and a management priority on returning cash to shareholders, both important drivers of long-term stock appreciation” writes JP Morgan. So with this bullish analysis in mind, let’s take a look at these 3 high-yield dividend stocks:
Apple Hospitality REIT (APLE)
We’ll start in the real estate sector. Real Estate Investment Trusts, or REITs, are companies formed to realize the gains inherent in the real estate business. The REIT owns, and usually oversees the operations of groups of real estate investments. REITs can focus on commercial properties, office spaces, residential properties, hotels, warehouses, retail spaces, or any combination of these. Some REITs focus solely on property equity, others focus on mortgages, and some invest in both to varying degrees. By law, REITs are required to return as much as 90% of their profits to shareholders.
Apple Hospitality, as its name suggests, focuses on hotel and other properties in the hospitality industry. The company owns 235 hotels with over 30,000 guest rooms, and has a presence in 87 markets across 34 states. In its recent Q3 release, APLE reported a return to shareholders for the previous 12 months in excess of $370 million. $100 million of that was in share buybacks, and $270 million was paid in dividends.
The company’s current dividend yield is 7.33%, with a quarterly payment of 30 cents per share, annualizing to $1.20. The payout ratio is 150%, a decidedly unhealthy number – the ratio indicates that the company is paying out 50% more in dividends than it is seeing in earnings. Normally, that would be an unsustainable situation, but REITs are a special case. As pointed out above, these companies are required to pay out a high percentage of their profits as dividends. APLE shares are up 15% year-to-date, however; while that is lower than the broader market’s 23% gain, it is sufficient to keep the payout ratio sustainable.
B. Riley FBR analyst Bryan Maher points out the advantages of APLE in its sector: “[T]he REIT has struck a very good balance between delivering consistent earnings results, a conservative balance sheet, and a well-covered dividend, all while implementing a steady capital recycling (upgrade) program. And, while it might not be the most exciting REIT in the U.S., APLE shareholders can count on their $1.20/share annual dividend even if the economy were to experience a modest downdraft.” That steady, reliable return is key in REIT investing. Maher gives APLE an $18 price target, with a 9.9% upside. (To watch Maher's track record, click here)
APLE is not widely covered by the Street’s analyst corps; among those who do cover the stock, however, the consensus is a Moderate Buy. APLE shows an average price target of $18.00, implying room for a 10% upside from the current trading value of $16.37. (See Apple Hospitality stock analysis on TipRanks)
Redwood Trust (RWT)
Our second company with a 7%+ dividend yield is another REIT. Redwood focuses on mortgage activities, investing its capital in residential mortgage funds and engaging in mortgage banking. The company’s main source of real estate income is from prime jumbo residential loans. The residential mortgage banking side of the operation acquires and sells packages of such residential loans.
The model is usually profitable, and Redwood has beaten its earnings expectations twice in the past four quarters. The most recent quarter, however, reported at the end of October, showed a miss. EPS came in at 37 cents per share, below both the forecast of 38 cents and the year-ago quarter’s earnings of 39 cents. Revenues, at $34 million, were just about half the year-ago figure of $67 million, and 23.6% below the quarterly forecast.
The earnings miss does not hurt the dividend, however. At 7.35%, and with an annual payout of $1.20, RWT’s dividend is almost exactly the same as APLE’s. The difference is in the payout ratio. RWT pays out 30 cents per quarter, and just reported earnings of 37 cents per share, leading to a payout ratio of 78%.
5-star analyst Steven Delaney, of JMP Securities, reviewed RWT, just after the company’s earnings release. He set a $17.50 price target, and wrote of the stock, “Redwood Trust announced third quarter 2019 results that were marked by solid, albeit sequentially lower, core earnings and continued book value stability… We maintain our Market Outperform rating and our price target of $17.50, as we continue to believe the company should trade at a material premium to peers due to its unique market positioning and reputation.” His price target indicates room for a 7.7% upside. (To watch Delaney's track record, click here)
Redwood Trust stock has a resounding “yes” on Wall Street. TipRanks analytics show that out of three analysts, all three are bullish. The price target of $17.83 shows a potential upside of about 10%. (See Redwood Trust stock analysis on TipRanks)
Crestwood Equity Partners (CEQP)
With our third high-yield dividend stock, we move into the oil industry. Crestwood is a midstream service provider with operations in 19 states. The company’s primary focus is in the Bakken Shale, the Delaware Permian Basin, and the Marcellus Shale. As a midstream operator, Crestwood doesn’t engage in drilling activities; the company’s operations are in three segments: Gathering & Processing, Storage & Transportation, and Marketing, Supply & Logistics.
To support its high dividend, Crestwood can stand on a Q3 net income of $33.6 million. The adjusted EBITDA figure, $140.9 million, was a healthy 39% higher than the year-ago quarter. Year-to-date earnings were revised upwards, to the $520 to $535 million range. From an investor perspective, the best news was the dividend, declared at 60 cents per share to be paid out on November 14 to shareholders of record as of November 7.
CEO Robert Phillips was upbeat in the company’s earnings call, saying, “So far, 2019 has been another stand-out year for Crestwood as we near the end of a successful three-year, approximately $1.0 billion, capital investment program in the Bakken, Powder River and Delaware Basins.” Rising income and a reliable dividend simply underscore the CEO’s optimism.
SunTrust Robinson analyst Tristan Richardson agrees that the Phillips’ positive outlook is justified. In his recent report on CEQP, Richardson writes, “CEQP has not only executed on its large projects, setting the table for a strong exit to the year, but also was able to message a capital allocation strategy that resonates with what we see as the best path to outperformance in midstream. Operationally, core growth areas are performing in-line to better than guided as growth projects set the stage for volume acceleration.” He sets a $40 price target on this stock, indicating confidence in a 25% upside potential. (To watch Richardson's track record, click here)
Richardson is in-line with the analyst consensus on this stock, a Strong Buy based on 3 buys and 1 hold set in recent months. The average price target of $41.50 implies an upside of 30% from the share price of $31.94. (See Crestwood’s price targets and analyst ratings on TipRanks).