The markets are volatile these last few months, with S&P 500 seeming unable to hold onto its gains, slipping 3.5% from its July 26 peak of 3,025 and swinging 100 points or more four times since the beginning of August. The rapid-fire shifts have investors yearning for stability – after all, investing is about making a profit, and profits are more likely in a stable, upward-trending environment.
Fortunately, some stocks are prepped to deliver profits whether the markets go up or down. Dividends represent income for shareholders, paid out regardless of general market conditions, and there are plenty of stocks out there which pay out handsomely.
We’ve used TipRanks’ Stock Screener to search the market for Strong Buy-rated investments with reliable high-yield dividend payouts – and a low cost of entry. With these attributes, a profit-minded investor will have to look twice.
New Residential Investment (NRZ)
Our first stock to look at, and the one with the highest-yielding dividend, is a real estate investment trust – a company that owns various properties and uses them to generate income. Under US tax law, these companies are heavily incentivized to pay out 90% or more of their income in the form of dividends. This makes the REIT a go-to stock sector for profit-oriented investors.
Based in New York, New Residential operates across the real estate industry, with portfolio holding in mortgage servicing, real estate securities, residential and commercial loans, and corporate properties. The company’s holdings total over $600 billion in value, and generate more than $960 million in net income from $2.37 billion in annual revenues.
The recent interest rate reductions by the Federal Reserve have impacted NRZ’s bottom line, as the company is heavily invested in the mortgage sector. However, like most REITs, New Residential has a high cash flow and can easily maintain its dividend payment. At $0.50 per quarter, that payment may look small – but the stock is priced at just $14.98, making the annual dividend yield a robust 13.35%. For comparison, the average stock on the S&P 500 yields a 2% dividend.
NRZ’s profit potential has drawn positive attention from Wall Street’s analysts. Initiating coverage of the stock with a Buy rating, BTIG’s Giuliano Bologna wrote, “…we believe investors should focus on NRZ’s unique portfolio of assets, the buildout of recapture capabilities and ancillary services that should improve the overall return…” Referring to the company’s dividend and cash flow, he added, “We believe NRZ has sufficient cash flow to maintain the company’s quarterly dividend of $0.50 and will benefit from additional cash flow contribution from call rights and the securitization/sale of originated loans during 2H19.” In line with his bullish outlook, Bologna set an $18 price target on the stock, indicating confidence in a 20% upside. (To watch Bologna's track record, click here)
Furthermore, Piper Jaffray’s 5-star analyst Kevin Barker also gave this stock a Buy rating. He said in his note, “…slight pressure to New Residential's tangible book value in Q3 is more than priced into the shares. Further, recent acquisitions are further evidence New Residential will continue to build out an operating company that will attempt to squeeze out revenue from all touch points on its large portfolio.”
Overall, New Residential has a Strong Buy rating from the analyst consensus. This is derived from 4 buys assigned in the last two months – so the consensus is unanimous. As indicated above, the stock sells for $14.98. The average price target is $18, which implies room for 20% upside growth. (See NRZ stock analysis on TipRanks)
Two Harbors Investment (TWO)
Two Harbors, like NRZ above, is a real estate investment trust. TWO manages the natural risk of the real estate market by diversifying its portfolio – the company is considered a hybrid REIT, meaning it holds both properties and mortgages among its assets. This strategy mitigates risk for the company while bringing the benefits of two separate income streams.
The success of Two Harbors’ hybrid strategy can be seen in the company’s results. It reported $201 million net income in the last quarter. Two Harbors CEO Thomas Siering said, “Our strong return on book value was driven by our acute focus on portfolio positioning and hedging. Additionally, improvements in financing continue to present a long-term opportunity for our business…”
Along with its solid income, TWO continued to pay out its regular dividend. At $1.60 annualized, the quarterly payment is 40 cents – but that comes from a share price of $13.31, making the yield 12.02%, or six times the S&P average. Two Harbors has been raising its dividend steadily over the past two year, and the payout ratio – which compares the annualized dividend to the annual EPS – is an impressive 84.7%.
All of this has brought RBC Capital analyst Kenneth Lee to reiterate his Buy rating on this stock. Publishing his comments on October 2, Lee said, “Two Harbors [has] less rate sensitivity due to differentiated agency MBS/MSR pairing strategy along with a unique, legacy credit-oriented portfolio. Given the current macro backdrop and our preference for credit-oriented REITs, we are initiating coverage with an Outperform rating…” Lee gives TWO a $15 price target, implying an upside potential of 12%. (To watch Lee's track record, click here)
Lee is not the only analyst impressed by Two Harbors. The company’s Strong Buy consensus rating comes from 3 "buy" and "1" hold give in the last three months. And at $14.75, the average price target suggests an upside of 10% over the $13.31 current share price. (See Two Harbors stock analysis on TipRanks)
Falcon Minerals (FLMN)
With our third high-yield dividend stock, we are leaving the real estate market and entering the energy industry. Falcon Minerals is a small-cap oil & gas company operating in the Eagle Ford Shale of south Texas. While overshadowed by the Permian Basin, also in Texas, the Eagle Ford Shale is known to be an oil-rich and gas-rich formation. A study sponsored by University of Texas San Antonio indicates that the formation may support as many as 5,000 new wells by 2020, which will bring up to 68,000 jobs to the region and have a potential $21 billion impact on the regional economy. And Falcon owns mineral rights in the core of the formation.
In addition to owning mineral rights, Falcon also has active wells drilling in the area. We can note here that, at over 11 million barrels per day, the US is now the world’s largest crude oil producer. Texas is the largest oil-producing state, putting Falcon in the epicenter of the world’s oil markets.
They don’t call oil ‘black gold’ for nothing. Falcon reported a $13.4 million free cash flow in the second quarter, and a net income of $8.9 million. It was more than enough to support the 15-cent quarterly dividend – which translated to a yield of 10.95% annualized. Even better, Falcon has 107 wells drilled and waiting on completion. In the Q2, the company averaged 9 active wells; with 12 times as many waiting in the wings, the company’s income outlook is impressive.
Building on this background, analyst Jeff Grampp of Northland gives FLMN a Buy rating, saying, “The long-term outlook is positive with activity levels trending up, smaller acquisitions continuing at a healthy clip and Hooks Ranch wells now being drilled… Activity levels on FLMN's acreage are trending higher. 11 rigs are currently operating on FLMN acreage, up from the nine rig average in 2Q19 and five rigs rig average in 1Q19.” Grampp puts a $7.50 price target on this stock, implying a strong upside of 36%.
Falcon has an overall analyst consensus of Strong Buy, based on 3 buys and 1 hold set in the last three months. The stock is a bargain price, at $5.48, as the $8.38 average target suggests an impressive potential upside of 52%. (See Falcon Minerals stock analysis on TipRanks)