The market rally is alive and well. Following the Federal Reserve’s third rate cut this year, the S&P 500 moved higher on Wednesday. This is on top of the 2% gain the index has already seen since market close on October 22. Bearing this in mind, investors are looking for ways to capitalize on the market’s upward momentum.
Analysts suggest that investors seek out the stocks that can reliably generate profits and reward investors with consistent payouts, namely dividend stocks. That being said, it should be noted that not all dividend stocks are created equal, with some offering significantly higher yields than others.
So how are investors supposed to determine which dividend names represent the most compelling investments? We recommend using TipRanks’ Stock Screener. The tool helped us pinpoint 3 Buy-rated names that each boast a dividend yield of more than 5%, while the average dividend yield of the S&P 500 stands at 1.85%.
Plains All American Pipeline (PAA)
Plains All American specializes in the transportation, logistics and storage of crude oil, with its primary focus being the Permian Basin, a large and resource rich region spanning the southwestern part of the U.S. Despite the fact that shares have been hurting recently, the Street’s pros see gains stemming from the Permian business as well as new projects.
While concerns have been expressed regarding the overbuilding of the Permian Basin, PAA’s Permian pipes have continued to sustain a solid level of contracts. Not to mention PAA is actively participating in the construction of new Capine, Red Oak and Wink-Webster pipes through its partnerships with major refining companies. These partnerships include the likes of Phillips 66, which PAA joined forces with back in June to build the Red Oak pipeline system.
With the company on a steady growth path, part of its appeal lies in its ability to maintain a stable dividend. PAA consistently rewards investors, with its annual payout of $1.44 per share putting the dividend yield at 7.75%.
Steve Fleishman of Wolfe Research told clients that all of the above lends itself to his bullish thesis. “The company offers well above average growth both organically through its Permian-focused business and through several large new capital projects where PAA has partnered with large refining companies,” the analyst explained. Fleishman added that PAA’s strong balance sheet is “now one of the best in the sector."
Fleishman rates PAA an Overweight along with a $27 price target, which implies about 50% upside from current levels. (To watch Fleishman’s track record, click here)
Similarly, the rest of the Street is in favor of this dividend stock. 6 "buy" ratings vs 2 "holds" assigned in the last three months give it a ‘Strong Buy’ analyst consensus. Additionally, its $26 average price target implies about 44% upside potential. (See PAA stock analysis on TipRanks)
Philip Morris (PM)
While best known for its tobacco brands like Marlboro, Philip Morris is captivating investors thanks to its iQOS products. iQOS is an electronic tobacco heating system, differing from traditional cigarettes in that it doesn’t burn the tobacco when it’s smoked.
iQOS is the only FDA-authorized reduced-risk product (RRP) allowed to sell mint and menthol flavors, giving it a significant competitive advantage in the U.S. The mint/menthol flavor plays a key role in adult smoker conversion as menthol makes up about 35% of total combust cigarette volume. The tobacco product’s potential isn’t limited to the U.S. iQOS’ launch in the EU only covers about half of the region’s population, leaving plenty of the market untapped. Not to mention there is a substantial opportunity to capture the market in Russia.
That being said, PM’s strength as a dividend stock can’t be ignored. Shareholders that get onboard now can expect a substantial reward. It offers the largest annualized payout out of all the names on our list, $4.68 per share to be exact. Additionally
All of this prompted top analyst, Wells Fargo’s Bonnie Herzog, to reaffirm her Bullish stance on PM. While she lowered her price target from $102 to $100, the four-star analyst is confident the company can deliver reliable returns, with the upside potential still coming in at a respectable 22%. “Given PM’s superior profit, existing infrastructure, capital strength, strong free cash flow, attractive 5%-plus dividend yield, leading global brand portfolio including Marlboro and deep management team with superior knowledge of the global tobacco industry, we expect the stock to outperform over the next 12 months,” she commented. (To watch Herzog’s track record, click here)
The rest of the Street is slightly more cautious regarding PM. Its ‘Moderate Buy’ consensus rating comes from 6 Buy ratings, 2 Holds and 1 Sell received in the last three months. Analysts see about 10% upside potential based on its $89.43 average price target. (See Philip Morris stock analysis on TipRanks)
Tenaris SA (TS)
When a stock scores a ratings upgrade, it’s a signal to investors that a unique opportunity may be presenting itself. This is the case for steel pipe and tube manufacturer Tenaris.
Wolfe Research analyst Blake Gendron just bumped up his rating from a Hold to a Buy, citing its free cash flow yield as well as its offshore optionality as particularly noteworthy. “TS has a relatively defensive balance sheet and robust FCF outlook (10% EV on our FY20 estimates), underpinned by its capital light footprint,” he noted.
While the analyst acknowledged that the fuel price freeze in Argentina could impact TS’ top-line performance, a new contract could offset any negatives. The company was recently awarded a five-year contract with Abu Dhabi National Oil Company (ADNOC) worth $1.9 billion to provide tubulars and Rig Direct services. As a result, Gendron believes that TS is the most compelling name in the space, calling it “our WR CE top pick”. All of this lends itself to a potential twelve month gain of 32%, according to the analyst. (To watch Gendron’s track record, click here)
Along with promising new opportunities and a strong balance sheet, TS is an attractive investment based on its continued ability to pay a solid dividend. With its $1.12 annualized payout amounting to a 5.4% yield, it’s no wonder TS is a resounding Buy among Wall Street analysts.
Not only is the stock a Buy, but the fact that only bullish calls have been published in the last three months give it a ‘Strong Buy’ Street consensus. It also doesn’t hurt that its $31 average price target suggests 45% upside potential. (See Tenaris stock analysis on TipRanks)