Dividend stocks. They’re the very picture of the reliable standby, the sound defensive play that investors make when markets turn south. Div stocks tend not to show as extreme shifts as the broader markets, and they offer a steady income stream no matter where the markets go. And it’s not just retail investors who move into dividend stocks.
Sharon Hill, the co-leader of Vanguard’s $48 billion Equity Income Fund who has built a record of success and reputation for bringing in positive results, sees plenty of opportunities for investors, despite the reality that an economic turndown is likely on the way. She’s recommending strong dividend payers as the way to weather this storm, noting that the div stocks’ income streams are capable of offsetting inflation – even when inflation is running higher than 8%.
“Dividend growth is one of the few things that has kept up with inflation as you go back and look over the decades. So when you go back and you look at the ’70s, ’80s — which is the last time you can actually find any notable inflation — what you see is dividend growth pretty much kept pace with it,” Hill explained.
The Street’s analysts are taking Hill’s view, along with a closer look at some dividend champs. They’re liking what they’re seeing in these stocks, which have histories of reliable dividend payments and yields that offer some insulation from the income-eroding effects of inflation. Using the TipRanks platform, we’ve pulled the details on two of these high-yield payers, and we’ll look at them along with commentary from the Wall Street analysts.
Plains All American Pipeline (PAA)
We’ll start in the energy industry, with a midstream company, Plains All American Pipeline. Midstream companies operate between the wellheads and the customers, operating networks of pipelines, storage tank farms, transport hubs, refineries, and other assets, including rail tankers and river barges, that are optimized to transport crude oil, refined petroleum products, natural gas, and natural gas liquids. Plains All American has just such an asset network, with over 18,000 miles of pipelines for crude oil and natural gas, along with storage tanks and terminal facilities.
The company’s network is spread out from northern Alberta down to the Guld Coast, in the Great Lakes region and the Chesapeake Bay, and in Southern California. In addition, the company owns and operates over 2,100 trucks and trailers, and some 6,000 railroad cars, both oil tankers and NGL carriers.
That all adds up to an $8.36 billion company, that brought in a total of $42.7 billion in revenue last year. This year, first half revenue has already reached $30.1 billion, putting the company well on track to beat 2021’s total top line. Revenue in Q2, the most recent reported, came to $16.3 billion, up 59% year-over-year. Plains All American has reported sequential revenue gains in each of the last 8 quarters.
At the bottom line, PAA reported 22 cents in diluted EPS in Q2, a far better result than 2Q21, when the company reported a net loss per share of 37 cents.
As can be expected from the sound revenue and earnings results, PAA also showed a solid cash position in the second quarter, with total cash assets as of June 30, 2022 growing 8.6% year-over-year to reach $6.66 billion. The company brought in $792 million in net cash from ops in 2Q22.
For dividend investors, these results translate into a generous common share dividend payment of 21.75 cents, or nearly the whole of the diluted EPS. The common stock dividend annualizes to 87 cents per share, and at current prices gives the stock a yield of 7.3%. This yield is more than triple the average dividend yield found among S&P-listed firms – and it is within 1 percentage point of the current rate of inflation, making it a sound choice for investors seeking protection from rising prices.
With a background like that, it’s no wonder that PAA has attracted rave reviews from the analysts. Among the bulls is Seaport analyst Sunil Sibal who writes of this stock: “PAA enjoys significant operating leverage on its Permian pipeline footprint and can thus continue to benefit from increased activity levels in the basin without having to spend significant additional capital. Additionally, its Canadian NGL fractionation footprint is expected to benefit from frac tightness in the region. With good progress on the deleveraging front, we believe PAA is well positioned to increase returns to its equity holders. We thus maintain our positive stance…”
In line with this view of PAA’s underlying strength, Sibal rates PAA shares a Buy with a $14 price target that implies room for ~17% growth in the year ahead. Based on the current dividend yield and the expected price appreciation, the stock has ~24% potential total return profile (To watch Sibal’s track record, click here)
This is hardly the only bullish take on PAA, as 10 of the 13 recent analyst reviews recommend the stock as a buy, supporting a Strong Buy analyst consensus rating. The shares are priced at $11.98 and their $14.88 average target gives a 24% one-year upside potential. (See PAA stock forecast on TipRanks)
Blackstone Inc. (BX)
For the second stock we’ll shift our focus from energy to finance. Blackstone is one of the best-known names in that sector, and holds the top spot as the world’s largest alternative asset manager. Blackstone’s portfolio, which has a global reach and totals some $950 billion in total assets under management, is highly diversified and includes $79 billion in hedge funds, $269 billion in credit and insurance, $283 billion worth of private equity, and $319 billion in the real estate sector.
While Blackstone is a market giant, with pockets deep enough to weather most storms, the company’s total revenues dropped from $6.2 billion in 3Q21 to just $1.06 billion in the current report. Earnings were also down; the distributable earnings of $1.06 per share was down from $1.28 in the year-ago quarter. At the same time, it’s important to note that this metric did beat the forecast by more than 8%.
On some bright spots, Blackstone reported $1.2 billion fee-related earnings (FRE) during the third quarter, for a 51% year-over-year gain, and net accrued performance revenues hit $7.1 billion. The total assets under management, at more than $950 billion, was up 30% y/y, and the company saw $44.8 billion in capital inflows during the quarter.
In all, Blackstone remained confident enough to keep up its capital return program, which sends profits and capital back to shareholders through a combination of share repurchases and dividend payments. The company’s total Q3 capital return hit $1.4 billion, and included the repurchase of 2 million common shares – and the payment of a common share dividend at 90 cents. At its current rate, the payment annualizes to $3.60 per common share and yields 4%.
Deutsche Bank analyst Brian Bedell, in his recent note on BX stock, wrote: “We view 3Q results as being relatively resilient amid a tough macro backdrop and investor fears of a major slowdown in fundamentals. While management acknowledged a likely temporary slowdown in retail fundraising given rising risk-off behavior, the fundraising profile overall remains very strong into next year and beyond.”
“Combined with comparatively good investment performance, including within real estate (that is likely to sustain fee-related performance fees), we see only a modest near-term slowdown in FRE growth, and we expect BX to achieve annual FRE growth of nearly 25% over the next three years,” the analyst added.
To this end, Bedell sees this as justification for reiterating his Buy rating on BX shares, and his $127 price target suggests an upside potential of 38% in the next 12 months. (To watch Bedell’s track record, click here)
Overall, out of 14 recent analyst reviews on this stock, 10 are to Buy and 4 are Neutral, giving BX its Moderate Buy consensus rating. The shares are currently trading for $91.65 and their $108.27 average price target implies a gain of 18% in the coming year. (See BX stock forecast on TipRanks)
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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.