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J.P. Morgan: 2 High-Yield (5%-Plus) Dividend Stocks to Buy Now

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The markets have been showing mixed messages lately. A look at the chart shows that the NASDAQ’s rate of climb has been slowing recently, although it remains at record high levels. At the same time, the S&P 500 is holding just over 3,200, putting the index back within 5% of its all-time peak – but the Dow Jones appears to have hit a plateau. All of this raises some questions about the future of the market’s bull rally.

Chief among those questions are worries about the resurgence of COVID-19 and the possibility of further lockdown policies. The state of California – which by itself is the world’s fifth largest economy, valued at over $2.6 trillion – has recently reimposed severe social distancing rules along with restrictions on businesses. Even Texas has imposed a mask mandate.

Worried investors are looking for safety, which will naturally renew interest in dividend stocks. But not just any dividend stocks. Too many companies have cut back on their payments, or suspended them altogether; investors will need to exercise some due diligence in making choices.

Fortunately, we can turn to the TipRanks database to the do that legwork. You can still find solid stocks featuring yields above 5%, and upside potentials starting over 40%. For investors seeking portfolio protection, these could be just what the doctor ordered. Now, 5-star analysts at JPMorgan have been reviewing companies that fit the profile; here are their takes on two of them.

Kennedy-Wilson Holdings (KW)

We will start with a real estate investment company. Kennedy-Wilson owns, operates, and manages a range of office and multi-family residential properties in the UK, Ireland, and the Western US. KW differs from real estate investment trusts in that it also acts as a real estate broker, primarily for clients in the financial services industry. The company currently has over $18 billion in assets under management.

Kennedy-Wilson saw earnings slip in the first half of this year, as the coronavirus pandemic cut into operations and income streams. The Q1 results showed EPS of 26 cents, 18% below the forecast.

Despite the earnings setback, the company has kept up its commitment to the dividend. Early in June, the company declared its Q2 dividend, which it paid out on July 9. The payment was 22 cents per share, in line with the previous two quarters. KW has been gradually raising its dividend payment for the past 9 years. The current dividend annualizes to 88 cents per share, with a yield of 5.42%.

JPM’s 5-star analyst Anthony Paolone is bullish on KW, writing, “We think the combination of the dividend yield, growth in NAV/share in the mid-single-digits that should return in 2021/2022, and the potential to narrow the NAV/share discount should all combine for a compelling IRR.”

Getting into some specifics of KW’s business approach, Paolone underlines the reasons for a bullish outlook: “We particularly like its focus on value-add apartments in the Western U.S. and its developments in Dublin. The stock’s NAV discount offers an attractive entry point, and we see core growth, development/re-development, and growth in its investment management business as all driving NAV/share higher in the coming years.”

Paolone backs his Buy rating on the stock with a $20 price target that suggests a 30% one-year upside. (To watch Paolone’s track record, click here)

KW shares are selling for $15.44, and the average price target, at $22, indicates an even more bullish upside than Paolone allows: 42%. KW's Strong Buy analyst consensus rating is unanimous, based on 3 recent reviews. (See KW stock analysis on TipRanks)

Navient (NAVI)

Higher education is big business, at least in part because student loans have fueled the tuition cash flow. Navient, which services 10 million individual student loans worth a collective $300 billion, is at the center of this huge industry. The COVID-19 crisis, and the attendant economic downturn, have put pressure on Navient, as loan customers have had difficulty making payments. At the same time, Navient benefits from provisions of Federal law that prevent student loans from being discharged in bankruptcy; the company is assured a steady income stream, even in poor economic conditions.

That fact has kept NAVI’s revenues in positive territory during 1H20, despite steep drops year-over-year. Q1 saw net earnings fall from 67 cents to 51 cents, while Q2 is expected to show a further decline to 48 cents per share. The company shored up its liquidity position by debt issuances in Q1, to the tune of $2.6 billion.

On a positive note, during the first half, Navient settled a 2018 lawsuit brought by teachers’ union members. The plaintiffs alleged that the company had directed them to the incorrect loan payment assistance programs, resulting in each plaintiff making payments that were not necessary – and could have been forgiven under other federal programs. In the settlement, Navient admitted no wrongdoing, but agreed to fund programs to educate both borrowers and loan officers on payment assistance and forgiveness programs.

With a firm liquidity position, and a major lawsuit out of the way, Navient has been able to maintain its dividend payments. The company continued its dividend in both Q1 and Q2, keeping the payment stable at 16 cents per share. The 64-cent annualized amount gives the stock a dividend yield of 8.54%. This is far higher than investors are likely to find elsewhere; the average dividend offers about a 2% yield. And at 10%, the payout ratio indicates that this dividend is safe – the company can easily afford it at current income levels.

JPM’s 5-star analyst Richard Shane sees NAVI shares doing well over the coming year, headwinds coming later in 2021. He writes, “We expect Navient will be more impacted in the near term by forbearance trends and is likely to receive questions about the Department of Education’s June announcement of the five servicers selected, of which Navient was not one, for the federal student loan program. While the latter is likely to be a matter of keen interest to investors, we note that the economic impact to Navient is likely to be delayed for at least 12-24 months.”

In line with his outlook, Shane rates NAVI a Buy for now, and his 12-month price target of $8 suggests an 12% upside for the stock. (To watch Shane’s track record, click here)

Overall, NAVI shares have a Moderate Buy rating from the analyst consensus, based on 3 Buy and 2 Hold reviews set in recent weeks. The stock’s $10.30 average price target is more bullish than Shane’s above, and implies a one-year upside of 43%. (See Navient stock analysis 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.