Right now, markets are facing a variety of headline headwinds, with more building up beyond the horizon. The current obstacles are well known: inflation is high, the Russo-Ukraine war, and the Western sanctions on Russia, promise to wreak havoc on international finance and commodities networks, and the US Federal Reserve is expected to start hiking interest rate this week.
As if all that weren’t enough, it’s a midterm election year. Both the Democrats and Republicans are maneuvering to find advantages come November. Right now, the electoral environment is favoring the Republicans. Should they win in the fall, it will bring a more deeply divided government to Washington. To try and forestall that, the Democrats are likely to try and push elements of President Biden’s stalled spending programs through the legislature – bringing the possibility of some combination of higher taxes and higher government spending into an economy that’s already reeling from the high inflation.
Against this backdrop, investors have been scrambling to protect their portfolios, seeking out the names that can still hand out steady returns amid persistent volatility. Sure, these types of investments aren’t always easy to spot, but that doesn’t mean it’s an impossible job.
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 the knowledge that not all dividend stocks are created equal, we turned to TipRanks’ database to pinpoint two high-yielding dividend stocks that consistently pay out at least 8% yield. Not to mention each one gets a “Strong Buy” consensus rating from the analyst community.
Crestwood Equity Partners (CEQP)
First up, Crestwood Equity, works in the US energy industry. This limited master partnership company owns and operates midstream assets, collecting, transporting, and storing crude oil, natural gas, and natural gas liquids. Crestwood operates in three major production area: the Williston and Powder River basins of the upper Plains; the Marcellus shale of Appalachia; and the Delaware basin and Barnett shale of Texas-New Mexico.
These regions are the powerhouses of US fossil fuel production, and Crestwood benefits mightily from operating in them. By the numbers, the company has over 2.1 million barrels of crude oil storage capacity, more than 35 billion cubic feet of natural gas storage, and 10 million barrels of natural gas liquid storage. The company’s assets also include extensive capabilities for processing and transporting gas and oil.
Higher fuel prices have also benefited Crestwood, and the company saw its earnings turn positive in 4Q21, the last quarter reported. Quarterly earnings rose sequentially from 3 cents to 79 cents per share, and came in far higher than the 41-cent forecast. Year-over-year, Q4 EPS was up 76 cents per share. The company’s revenues also were strong, coming in at $1.38 billion, or up 111% y/y.
Even before these results, Crestwood was paying a high dividend. At 62.5 cents per common share, the payment annualizes to $2.50 and gives a yield of 8.7%.
Further evidence of management’s confidence and Crestwood’s strength came in February, when the company closed its acquisition of Oasis Midstream. The deal was worth approximately $1.8 billion, included assumption of debt, and was conducted mainly in stock.
Reviewing Crestwood’s position, Stifel analyst Selman Akyol wrote: “We believe Crestwood has proven its ability to navigate through a downturn. With higher commodity prices, the outlook for all its basins is improving, and CEQP’s unit retirement transaction with First Reserve allows for incremental FCF generation moving forward. We believe CEQP can fund its growth capex with excess cash flow and lower its leverage metrics, while remaining over 2.0x covered… We continue to favor Crestwood, given its increased scale through the Oasis acquisition, its financial flexibility and declining leverage.”
All of this supports Selman’s assumption that CEQP’s growth narrative remains strong. The analyst rates the stock a Buy and his $39 price target suggests ~37% upside potential from current levels. To (To watch Selman’s track record, click here)
The Strong Buy consensus on this dividend champ comes from 4 recent analyst reviews, that include 3 Buys and 1 Hold. The shares are trading for $28.44 and the $35.25 average target implies ~24% upside from that level. (See CEQP stock analysis on TipRanks)
Hercules Capital (HTGC)
Next up is a unique business development company (BDC), making its niche in venture debt. Hercules provides funding and financing for emerging companies at the pre-IPO stage, and stands as an alternative for these firms to venture capitalists. In operation for almost 20 years, Hercules has made over $13 billion in capital commitments to more than 560 companies, and is recognized as one of the venture world’s most important non-bank financing sources.
Hercules’ current portfolio focuses on companies in life sciences, sustainable renewable tech, SaaS finance, and digital tech. In 2021, the company saw its efforts reach several new records. For the full year, annual total gross debt commitments reached $2.64 billion, up 122% year-over-year, and total gross fundings reached $1.57 billion, up 106% y/y. The Q4 contribution to those totals was substantial: quarterly gross debt commitments registered $947.8 million, and quarterly gross fundings were $503.3 million.
This activity generated a high net investment income, of 35 cents per share. While actually down from the year-ago quarter’s 37 cents, the Q4 income still provided 106% coverage of the total shareholder distributions – in other words, Hercules met its dividend commitments and hand profit remaining.
The dividend is substantial, too. It consists of a 33-cent base payment per quarter, along with a 15-cent supplement, making the Q4 payment 48 cents total per common share. Counting both the regular and supplemental dividends, the company’s payment gives a yield of 11.4%.
Devin Ryan, 5-star analyst covering Hercules for JMP, takes a detailed look at this company, and sees it in a strong position for the near future.
“Hercules Capital delivered solid 4Q21 results, and more importantly, we believe Hercules is positioned for strong earnings growth in a rising interest rate environment. Looking ahead to 2022, we believe management’s ongoing focus in extending duration and building a cost-efficient, predominantly fixed rate liability structure should lead to strong earnings growth in a rising rate environment. As of year-end, Hercules’ outstanding borrowings were ~98% fixed rate and 2% floating rate, which positions the BDC for strong net investment income growth in the intermediate term and beyond as interest rates rise,” Ryan opined.
To this end, Ryan gives Hercules an Outperform (i.e. Buy) rating, and his $19 price target implies an upside of 11% for the next 12 months. Based on the current dividend yield and the expected price appreciation, the stock has ~22% potential total return profile. (To watch Ryan’s track record, click here)
Wall Street is sanguine about Hercules, as shown by the Strong Buy consensus supported by 3 Buys and 1 Hold. Hercules’ shares are priced at $17.10 and the $18.63 average target suggests the stock has a one-year upside of ~9%. (See HTGC stock analysis on TipRanks)
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.