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In a recent note to investors, Oppenheimer Chief Investment Strategist John Stoltzfus takes up the issue of COVID-19 and its impact on the markets. He notes that the drop in stocks came along with a strong US jobs data which substantially exceeded expectations, but virtually ignored by the markets.
“Economic data released last week in the US tied to job growth, wages and unemployment significantly exceeded economist survey expectations but were paid little attention and disregarded as they were considered to be “in the rearview mirror data points” rather than evidence that the economy is facing the coronavirus packet of uncertainty from a position of strength rather than weakness," Stoltzfus wrote. The analyst added, "We are not physicians or epidemiologists but as experienced market strategists we can’t help but think that the equity and bond markets’ response to the current coronavirus situation (as tragic and serious as it is) looks very much overdone."
A situation like this is tailor-made for defensive stock plays – and that will naturally bring investors to look at high-yield dividend stocks. But not all dividend stocks are created equal. Oppenheimer’s top-rated analysts made several recent calls highlighting some of those differences, and we’ve use the TipRanks database to pull up the details. Let’s take a closer look.
Solar Capital, Ltd. (SLRC)
We’ll start with Solar Capital, one of Oppenheimer’s Buy-side calls. This business development company generates income through debt and equity investments in leveraged companies, pumping capital into their investment-grade loans.
SLRC reported a Q4 2019 net investment income of $17.1 million, coming out to 41 cents per share. Earnings for the 2019 fiscal year came to $72.4 million, or $1.71 per share. The company’s investment portfolio finished the year performing 98.4% at cost.
The strong performance supported the company board’s Q1 2020 declaration of a 41-cent per share dividend, payable in April to shareholders of record as of March 19. The dividend has been steady at this level for the last two years; the current payout ratio, 100%, indicates that the company’s full profit is being shared with investors, as is not uncommon with BDCs. The dividend yield, 8.7%, is well over 4x the average among S&P listed companies, and nearly 9x higher than Treasure bond yields – providing a strong incentive for income-minded investors.
Oppenheimer analyst Chris Kotowski, rated 5-stars by TipRanks, sees a clear path to further gains here, and writes in his recent note on this stock, “Given a predominantly floating-rate portfolio in a time of rising rates, differentiated equipment financing and life science lending, and strong credit trends due to a focus on senior secured investments, we believe SLRC presents one of the better risk/reward profiles in the space…”
Kotowski’s $23 price target implies a 22% upside potential and supports his Buy rating. (To watch Kotowski’s track record, click here)
Overall, SLRC gets a Moderate Buy rating from the analyst consensus, based on an even split: 2 Buys and 2 Holds. Shares are priced at $17.57, and the average price target, $22, indicates room for a 24% growth potential. (See Solar Capital stock analysis on TipRanks)
CenturyLink, Inc. (CTL)
The next stock on our list might not strike you as an intuitive buy – but the dividend, and improving performance in the most recent reported quarter, give this stock an argument for investors’ interest. CenturyLink is a cloud-based communication services tech firm, offering solutions in networks and online security. The company, based in Louisiana, brings in over $23 billion in annual revenue and boasts a market cap of $13 billion.
CTL met earnings expectations in Q4 2019, posting an EPS of 33 cents. While down 10.8% from the year before, the Q4 number was up 6.4% sequentially, and represented a positive contrast to Q3’s failure to meet the forecast. Q4 revenues also beat estimates, by a half percent; the top-line number was $5.57 billion.
The earnings – even in Q3 – have been strong enough to support a 25-cent quarterly dividend, which the company has held steady for 5 quarters. Overall, CTL has a 5-year history of reliably paying out profits to shareholders. The current payment gives a yield of 8.3%, which, like SLRC above, compares favorably with both Treasury notes and the average stock’s yield. Combined with the company’s 15% share gain over the past 12 months, it becomes clear why Oppenheimer has come down on the positive side for this stock.
5-star analyst Timothy Horan wrote the research note on CTL for Oppenheimer, and gave the stock a Buy rating. His $16 price target shows his confidence in a 33% upside potential.
In support of his rating, Horan stated, “Revenue trends continued to improve in 4Q19, driven by growth in enterprise, IGAM, and broadband... Enterprise bookings look solid with recent government contract wins, but this will take time to materialize in revenue. Expanding fiber builds is benefiting broadband/enterprise, and we believe the company is well positioned to capture higher-quality customers… 20% FCF yield remains attractive and accrues to shareholders through a paydown in debt of $2 billion-plus per year plus a $1 billion dividend.” (To watch Horan’s track record, click here.)
CenturyLink’s recent underperformance is still reflected in its analyst consensus rating -- Hold. That consensus view is based on 3 Holds, 3 Sells, and 2 Buys. Shares are trading at $10.82, and the average price target of $13.36 suggests a possible upside of 23%. (See CenturyLink stock analysis on TipRanks.)
Apollo Global Management LLC (APO)
Apollo Global Management is an alternative investment management company that takes a contrarian approach, creating risk-adjusted opportunities for investors. The company’s assets under management include credit, infrastructure, real estate, and private equity instruments, giving the Apollo a diversified portfolio totaling $331 billion.
Apollo reported solid gains in Q4 2019, with quarterly EPS coming in at 59 cents and the full-year number at $2.19. The company saw capital inflows of $64 billion during the year, which gives it strong momentum going forward into 2020.
The quarterly performance supported an 89-cent per share cash dividend, paid out at the end of February to stockholders of record as of February 11. The payment was 78% higher than the Q3 dividend; APO has a history of adjusting dividend payments to current conditions. Annualized, the payment gives a payout of $3.56 per share and a yield of 8.8%. It’s a clear attraction for the stock, especially given APO’s 12-month share appreciation of 48%.
That share appreciation, however, led Oppenheimer to downgrade the stock in January from Buy to Hold. Analyst Chris Kotowski, quoted above, made the call, on the theory that further gains will overvalue the stock.
In his note, Kotowski wrote, “We like APO's business model and think it will be among the secular winners in the new financial landscape as regulation and economic forces push more activity out of the regulated banking sector…, but remain on the sidelines for now given the current valuation.” He declined to put a specific price target on APO shares. (To watch Kotowski’s track record, click here)
Overall, Apollo’s Moderate Buy analyst consensus rating is based on an even split – with 12 reviews, the stock has 6 Buys and 6 Holds. The $52.40 average price target suggests a 48% premium from the current share price of $34.95. (See Apollo stock analysis on TipRanks)