The last inflation report had investors on the edge of their seats, as it came in worse than expected. Many were worried about the Federal Reserve’s plans for interest rates this year. However, things are not as bad as they seem, with the central bank holding rates steady, alleviating fears of a hike, restoring confidence in the market, and causing dividend stocks to rebound.
But hold on… According to JPMorgan’s chief market strategist Marko Kolanovic, we could see a repeat of last summer’s drawdown. He says that with a continued risk of concentration reversal, too steep projections for earnings acceleration this year, and positioning unwinding, the risks still remain.
So, what should investors do now? There’s a tried-and-true strategy that many investors turn to during uncertain times like these: dividend stocks. These stocks can provide a reliable source of passive income, which can help you weather the storm even if the market takes a dip.
If you’re interested in finding some top-notch dividend stocks, here are two that fit the bill perfectly. Not only do they have a solid defensive profile, but they’ve also earned a “Buy” rating from analysts and offer at least an 8% dividend yield. Let’s take a look!
Energy Transfer LP
First on the list of dividend stocks to but is Energy Transfer (ET). Energy Transfer is a prominent midstream company in North America, offering a wide range of assets for the transport and storage of various liquids, crude oil, refined products, and natural gas. With a market cap of $53.5 billion, it boasts an extensive network of pipelines, terminal and transfer facilities, and tank farms, mainly located in the Gulf Coast region.
Energy Transfer’s operations are impressive in scale and magnitude. Its crude oil segment comprises 14,500 miles of pipeline traversing across 20 states, while the natural gas liquids segment has another 5,700 miles of pipelines. The company moves refined products through an extensive network of 3,760 miles of pipeline, and has 37 active refined products marketing terminals, with a storage capacity of approximately 8 million barrels. All of these assets position Energy Transfer as one of the leading midstream companies in North America.
In spite of its leading position in the energy industry, its last quarterly report covering the period of 4Q23 showed mixed results. Although the company’s revenues for the quarter missed the forecast at $20.53 billion, which was flat year-over-year and $970 million below expectations, its earnings and cash flow revealed a positive story. The non-GAAP EPS of 37 cents was 3 cents better than had been anticipated, and the distributable cash flow, which supports the dividend payment, showed an increase of 6.2% year-over-year, reaching $2.03 billion for the quarter.
The company has consistently and gradually increased its dividend payment over the past few years. The most recent dividend declaration of 31.75 cents per common share represents a 0.8% increase from the previous quarter, marking the 10th consecutive bump. The payment annualizes to $1.27 per share, which provides a forward yield of 8%.
Gabe Moreen, a reputable stock professional at Mizuho, has stated that Energy Transfer (ET) has the potential to continue its growth, despite already being a large company.
“ET has no shortage of growth opportunities and has been discerning prioritizing balance sheet flexibility. ET’s improved leverage outlook should allow more aggressive capital return beyond the current 3-5% distribution growth rate and initiation of larger scale unit repurchases could potentially help address ET’s steep valuation discount,” the 5-star analyst explained.
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Black Stone Minerals LP
Next, as one of the overlooked dividend stocks, is Black Stone Minerals (BSM). Black Stone is a company that earns revenue through royalties from its vast land holdings in energy-rich hydrocarbon production regions located in Texas, Louisiana, Mississippi, and Alabama.
The company acquires its land holdings through targeted acquisition activities, rather than random acquisition. To ensure the highest returns from these holdings, Black Stone has a team of experts, including geologists, technical engineers, land and business developers, and energy investment experts. As the landowner, Black Stone is able to generate solid returns from the royalties paid by energy extraction companies.
As of the end of 2023, Black Stone had 63 active operational rigs on its land holdings. The royalties on those rigs’ activities brought a total revenue of $190.8 million in Q4 of 2023, which is a 17% decrease year over year but exceeded the forecast by over $64 million. At the bottom line, Black Stone realized a Q4 EPS of 65 cents per share, which is 24 cents per share better than expected.
Investors who are interested in dividend stocks might find it compelling to know that Black Stone has been consistently generating distributable cash flow above $100 million for the past seven quarters. Although the Q4 figure experienced a 4% decrease from the previous quarter, it still remained at $119.1 million.
This distributable cash flow supported a Q1 dividend payment of 37.5 cents per common share, which was announced in April. The dividend payment was annualized to $1.50, and even though the announcement represented a 21% decrease from the previous quarter, the dividend still offers a forward yield of 9.15%.
Stifel analyst Derrick Whitfield is now interested in Black Stone Minerals due to the company’s advantageous position, writing, “In our view, BSM provides investors a unique combination of investment themes, including valuation, return of capital, and organic value creation. Qualitatively, Black Stone Minerals is the largest pure-play oil and gas mineral and royalty owner in the United States, with peer leading positions in the Williston and Haynesville. We believe the stock offers below-average leverage and under-appreciated exposure to the Haynesville (one of the most capital-efficient dry gas plays in the Lower 48).”
Whitfield’s analysis suggests that BSM’s recent remarks support a Buy rating. He has also set a price target of $19, which indicates a potential one-year gain of 16%.
Should you invest in these dividend stocks?
If you are looking for a defensive move for your portfolio in these times of uncertainty, you might want to consider dividend stocks. Generally speaking, they have historically outperformed the S&P 500, and they also offer lower volatility and two sources of return.
Going back to our picks, nine recent analyst reviews have rated Energy Transfer as a Strong Buy, with eight of them preferring Buy over Hold. Currently, ET’s shares are trading at $15.89 per share. Additionally, the average price target of $18.44 suggests that there is a 16% potential gain for the year ahead.
On the other hand, it’s worth noting that BSM shares have only received two recent analyst reviews, resulting in a Moderate Buy consensus rating with one Buy and one Hold rating. Currently, the stock is trading at $16.39, and its $18 price target implies that it could have a 10% gain in the next year.
You can earn up to 8% dividend yield from these two dividend stocks. It’s a chance to potentially earn more than the average dividend yield on S&P 500 index companies and secure a low-risk investment option. Would you consider adding some shares of these dividend stocks to your portfolio?
(Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.)
