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Seeking at Least 10% Dividend Yield? Analysts Suggest 2 Dividend Stocks to Buy

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A falling market trend, a rally at the end of May, and now a volatile week to start off the month of June. Just what is the market up to, and how can we make sense of it? Those are the questions that Morgan Stanley strategist Mike Wilson tries to tackle in a recent note. The well-known analyst is one of the Street’s highest-profile bears right now, although he does see gains coming in the short term.

Wilson quantifies those gains with a prediction of 4,250 to 4,300 in the S&P 500’s current rally, which would translate to a jump of approximately 3% from current levels.

Looking forward, however, Wilson believes that we’re in for more losses as the bearish trends return. He writes, “The key fundamental call we are focused on now is slowing growth, and our view that earnings estimates are too high.” To this end, Wilson puts a forecast of 3,400 for the S&P by the end of August this year.

In the meantime, investors should take moves to shore up their portfolios’ defenses. According to the pros, high-yield dividend stocks can represent compelling plays in the current economic climate. A reliable dividend name can provide a stable profit, insulating a portfolio even if share price is falling.

With this in mind, we turned to TipRanks’ database to pinpoint two dividend stocks that pay out at least 10% yield. We examined the details behind these two to find out what else makes them compelling. Let's take a closer look.

Great Ajax Corporation (AJX)

We'll start with Great Ajax, a real estate investment trust (REIT). It’s normal to find REITs in a list of dividend champs; these firms are typically required by tax regulations to return a high percentage of profits directly to shareholders – and dividends a logical mode for such return. Great Ajax, which holds a portfolio of mortgage loans secured primarily by a combination of single-family residences and single-family properties. The company also invests in multi-family residential and in commercial retail/residential properties.

In the first quarter of 2022, these property holdings brought Great Ajax a total of $23.2 million in interest income, with a net income attributable to stockholders of $3.6 million. The latter number translated to an EPS of 15 cents. While profitable, the EPS was down by half from the 30 cents reported in 1Q21, and also down from the 32 cents reported in 4Q21. The lower earnings were attributed to a $4 million non-cash GAAP charge on the re-securitization of existing loans.

On a more positive note, the company collected $85.3 million in cash from operations, mainly from loan payments and sales of real estate owned properties. Great Ajax had $70.7 million in cash holdings at the end of 1Q22.

Positive earnings and strong cash holdings backed up the company’s dividend payment, which was declared at the beginning of May for 26 cents per common share and paid out on May 31. The payment was the highest since the end of 2019, and annualizes to $1.04 per common share. At that rate, the dividend yields an impressive 10%. This is approximately 5x the average dividend yield found among S&P-listed firms.

Looking forward, Compass Point analyst Merrill Ross sees AJX as a company in a sound position to bring returns to shareholders.

"We think that AJX has considerable optionality in the form of strong cash flows to take advantage of market volatility to expand its investments, either on balance sheet or through joint ventures, and improve its earnings, even if we don't know when that might occur. The shares are currently trading at a massive 55% discount to NAV despite a positive earnings outlook, which we think represents an opportunity for long-term investors to build a position with little downside risk,” Ross opined.

In Ross’s view, the upside here is substantial and justifies a Buy rating on the shares. Her price target, of $16, implies a 54% gain in store for the stock over the next 12 months. Based on the current dividend yield and the expected price appreciation, the stock has ~64% potential total return profile. (To watch Merrill’s track record, click here)

The Street would seem to be in broad agreement on this one, as all four of the recent analyst reviews are positive, for a unanimous Strong Buy consensus rating. The stock is selling for $10.35, and its $14.38 average price target suggests an upside of ~39% this year. (See AJX stock forecast on TipRanks)

AGNC Investment (AGNC)

Now we’ll turn to AGNC Investment, another REIT in the mortgage-backed security (MBS) market. AGNC, however, focuses on those MBSs backed by the US government. The company’s investment portfolio totals some $68 billion, of which 91% is in 30-year fixed rate mortgages. Most of the remainder is invested in 20-year fixed rate mortgages for 15-year and less fixed rate loans. $47.4 billion worth of the portfolio is in residential mortgage-backed securities. AGNC’s portfolio is primarily financed by collateralized borrowing, structured into repurchase agreements.

AGNC reported a non-GAAP income per share of 72 cents in 1Q22, down slightly from the 75 cents reported in 4Q21 and the 76 cents reported in 1Q21. While EPS is trending down on a gradual slope over the past two years, the company has been able to easily maintain its 36-cent per quarter common share dividend. The payment has been held at this level since March of 2020, and is paid out in monthly installments of 12 cents per common share. AGNC has a history of keeping reliable dividend payments going back to 2008.

At the current rate, the dividend pays out $1.44 per common share annually, and yields a sky-high 11.9%. Not only does this compare favorably to yields among peer companies on Wall Street, but it is significantly higher than the current 8.3% annualized rate of inflation, giving AGNC a strong real return for investors to consider.

Taking a macro look at AGNC, Piper Sandler’s 5-star analyst Kevin Barker comes down heavily on the bullish side, writing: “In our view, the stock has more than priced-in further increases in benchmark rates combined with further spread widened in the agency mortgage sector. Considering mortgage spreads are now at the widest level in the last 12 years excluding a few days in March 2020, we believe there is a favorable backdrop for AGNC to recover a large portion of the TBV decline recognized YTD.”

Based on the above, Barker rates AGNC shares an Overweight (i.e. Buy) along with a $13 price target. (To watch Barker’s track record, click here)

So, that’s Piper Sandler's view, how does the rest of the Street see the next 12 months panning out for AGNC? Based on 5 Buys and 4 Holds, the analyst consensus rates the stock a Moderate Buy. (See AGNC stock forecast 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.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.