The official CPI report, released this morning, came in at 7.1% for the month of November, compared to the 7.3% expectations. The beat will give confidence to investors, and the major indexes are showing solid gains in reaction.
Meanwhile, the Central Bank’s decision makers are convened for the final FOMC meeting of the year, and are widely expected to institute another interest rate hike – Chairman Jerome Powell has already indicated that we need to see more pain from high rates before inflation is reined in – but today’s data points toward a rate hike of 50 basis points, lower than the last several decisions, which were 75bps each. A hike of 0.5% hike will put the Fed’s key funds rate in the 4.25% to 4.5% range.
So investors are in optimistic moods, and it has them looking to buy. But a smart investor keeps sight of the underlying facts – and those facts are still tough. Inflation remains high and recession seems just around the corner. Investors will need a defensive stance to protect their portfolio.
And that’s going to draw us to the high-yield dividend stocks, the market’s classic defensive play. We’ve used the TipRanks database to look up two dividend payers that offer yields that beat the current inflation rate. And even better, they both have a ‘Strong Buy’ consensus rating from the wider analyst community. Let’s take a closer look.
Blackstone Secured Lending (BXSL)
The first high-yield dividend stock we’ll look at is Blackstone Secured Lending, a business development company, acting as the business development arm of the Blackstone asset management firm. BSL has a portfolio based mainly on first lien senior secured debt in US private companies, with total investments worth some $9.7 billion.
The portfolio is profitable, and in the last reported quarter, 3Q22, the company showed a bottom line of 80 cents per share – beating the forecast by almost 16%, and growing 17% year-over-year. In GAAP terms, the EPS rose 23% y/y, to 58 cents per share.
Of particular interest to dividend investors, BSL finished Q3 with over $1.1 billion in cash on hand, up 12% y/y – and a commitment to returning profits to shareholders. The company spent $164 million in the quarter buying back 7 million BXSL shares, and raised its dividend in September by 13%. The next dividend payment, at that rate, is set for January 31, 2023. With an annualized rate of $2.40, the dividend gives a strong yield of 10.3%. That yield is more that 5x the average found among S&P-listed companies, and beats inflation by over 3 points.
BXSL’s strong defensive characteristics and attractive dividend yield drew it to the attention of Compass Point 5-star analyst Casey Alexander.
“On several occasions, we have made the point that in our view BXSL has the best combination of characteristics for investing in a BDC in the current economic climate… A portfolio that is a) highly defensive, and b) has the strongest earnings leverage relative to rising interest rates is likely to be a top performer in the cycle that presents itself to us. The excellent liquidity and institutional quality of the portfolio only add to BSXL’s attractiveness and make it one of our best ideas in the BDC space,” Alexander opined.
Looking ahead, Alexander rates BXSL shares a Buy, with price target set at $28 to suggest a one-year gain of ~18%. Based on the current dividend yield and the expected price appreciation, the stock has ~28% potential total return profile. (To watch Alexander’s track record, click here)
Overall, all five of the recent analyst reviews on BXSL are positive, making the Strong Buy consensus rating unanimous. The shares are selling for $23.73, and with an average price target of $26.80, they have ~13% upside potential for the next 12 months. (See BXSL stock forecast at TipRanks)
Starwood Property Trust (STWD)
Next up is Starwood Property, a real estate investment trust, a REIT. This class of company has long been known as a champ among dividend payers – and Starwood is no exception. The company boasts a portfolio of commercial, infrastructure, and residential lending, plus investing services, worth a total of exceeding $25 billion. The Connecticut-based firm has offices in the major urban real estate markets of NYC, San Francisco, and LA.
Starwood saw a jump in revenues in the last quarter, of approximately 25% year-over-year, to more than $390 million, along with income of $194.5 million. On a per-share basis, the company realized 51 cents diluted EPS in distributable earnings, a metric that should interest return-minded investors, as it directly supports the dividend.
That dividend is worth looking at. Starwood pays out 48 cents per common share quarterly, or $1.92 annualized – and the payment yields a robust 9.5%. At nearly 5x the average among div payers in the broader market, and some 2.4 points than higher than inflation, this dividend ensures a real rate of return for investors.
Analyst Donald Fandetti, of Wells Fargo, has been watching Starwood for a while, and he is upbeat on the company’s current prospects, writing: “We’ve entered a higher risk environment for commercial mortgage REITs and the markets could get more volatile near term. That said, we think mgt’s incremental caution makes sense, as it sets them up to take advantage of opportunities down the road. We believe STWD’s diverse portfolio makes them particularly well positioned to weather the challenging economic environment and higher rates.”
In Fandetti’s view, this justifies an Overweight (i.e. Buy) rating, and his price target, at $24, implies an upside of ~15% by the end of next year. (To watch Fandetti’s track record, click here.)
Overall, this is another stock with a Strong Buy consensus rating, also based on five unanimously positive analyst reviews. With an average price target of $24.50 and a trading price of $20.5181, Starwood has ~18% potential upside for the one-year time frame. (See STWD stock forecast on TipRanks)
To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a 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.