2 High-Yield Dividend Stocks That Are Poised to Rebound

Monday was a good day in the stock markets, no doubt about that. The S&P 500 jumped 136 points, and the Dow saw its highest point gain ever, a 5% increase in just one session. Market watchers, though, are still giving mixed views of the situation. On the negative side, the virus continues to spread – worldwide, there have been some 90,000 confirmed cases and 3,000 deaths. And the full economic impact has yet to be felt. On the positive side, the gains broke a 7-day market losing streak, and bring a ray of hope that the coronavirus outbreak may run its course without inflicting permanent damage on world economies.

The question for investors, of course, is where will the market head next? Are the gains returning, or is this just the next hill of the roller coaster? Uncertainty is the only certainty, making defensive moves, toward resilient stocks, a smart play for investors. Equity research firm Robert W. Baird agrees, and has released a research report on current conditions, and some of the stocks that fit the bill. Sitting at the summit of TipRanks’ top performing research sirms, Baird’s analysts have the wherewithal to spot the right investment and know a bargain when they see one.

Using the TipRanks Stock Screener tool, we’ve pulled up the details on some of Baird’s recommendations. These are stocks with a specific set of clear attributes, that frequently indicate a strong defensive profile: a high dividend yield, over 5%; a Moderate Buy consensus view; and a solidly positive signal from corporate insiders. So let’s take a closer look at two of Baird’s picks.

Oneok, Inc. (OKE)

We’ll start with Oneok, a midstream company in the natural gas industry. OKE’s operations are in the Rocky Mountain, Mid-Continent, and Permian regions, where the company controls natural gas processing plants, storage facilities, and pipelines in some of North America’s richest gas producing formations.

Oneok’s financial position is firm, despite lower natural gas prices in recent months. The company saw 2019 net income increase 11% compared to 2018. For Q4 2019, OKE reported $320.3 million in net income, and $1.279 billion net income for the full year. Per share, the numbers came out to 77 cents for the quarter and $3.07 for the year. The strong performance is supported by the insider signal, as corporate officers have been picking up OKE shares in the last 3 months. The largest informative transaction was a $450,650 purchase during Q4.

Natural gas midstreaming is a cash-rich sector, and OKE uses that cash to fund a highly reliable dividend. The company has an 11-year history of keeping up the payments, and has raised the dividend 8 times in the last three years. The current payment is 93.5 cents per share quarterly, after an increase announced in January. The yield is 5.4%, based on an annualized payment of $3.74. That yield compares favorably to the ~2% average among S&P listed companies.

Writing for Baird, analyst Ethan Bellamy says of OKE, “While $900 MM of new projects push FCF estimates down in 2020, returns look excellent (sub-5x) and will be believed by investors given OKE’s stellar track record… We view ONEOK as high-quality enterprise with a strong competitive position in a cyclical market. With substantial growth ahead, ONEOK commands a premium valuation that we view as efficiently capturing the company’s investment potential at this time.”

Bellamy’s Buy rating is backed by a $79 price target, suggesting room for 14% upside growth. (To watch Bellamy’s track record, click here)

The rest of Wall Street largely buys into what this energy player has to offer, as TipRanks analytics reveal OKE as a Buy. Out of 13 analysts tracked in the last 3 months, 9 are bullish on Oneok stock while 3 remain sidelined and one is bearish. With a return potential of 13.5%, the stock’s consensus price target stands at $78.45.

AT&T, Inc. (T)

The final stock on our list is an old blue-chip standby, and is the largest provider of landline telephone services and mobile services in the US, and with its ownership of WarnerMedia is becoming an important player in the content streaming segment. AT&T saw more than $181 billion in total revenues in 2019, with net income exceeding $19.9 billion. Even with the recent market correction, T shares are up 27% in the past 12 months.

AT&T saw EPS of 89 cents in Q4, a 3.5% gain year-over-year, and a free cash flow of $8.2 billion. For the whole of 2019, the company saw a 30% increase in the FCF, to $29 billion.

The strong cash flows are important, as they ensure that the company can maintain its high dividend. T has long been recognized as one of the market’s dividend champs, consistently maintaining a high yield. With an annualized payment of $2.08 (or 52 cents quarterly), the current yield is a robust 5.6%. The payout ratio, just 58%, indicates that the company can easily afford this payment at current income levels. With solid earnings and a strong dividend, it’s no wonder that insiders are sanguine on the stock, and have bought up over $3.76 million worth of shares in the past three months.

5-star Baird analyst William Power, in his review of T stock, made a point of noting the free cash flow – and its near-term prospects. He wrote, “T generated $29.0 billion of FCF in 2019, above original expectations, and expects $28 billion in 2020, which includes HBO Max investments. That would result in a dividend payout ratio in the low 50% range. In addition, T monetized $18 billion of assets in 2019 and expects to monetize another $5-10 billion in 2020.”

The analyst concluded, “Within our communication services coverage, we view T as an attractive defensive play given its U.S. focus and strong dividend yield. We have recommended AT&T in large part on the strength of its free cash flow and dividend yield, along with the long term margin expansion opportunity. We are positive on its long term targets, with significant free cash flow generation.”

Power gives T a Buy rating, and supports that with a $41 price target, indicating a 10% upside potential. (To watch Power’s track record, click here)

All in all, AT&T’s analyst consensus rating is a Moderate Buy, based on 9 Buy-side reviews against 4 Holds and 1 Sell. Shares are affordable, at $37.18, and the average price target of $39.92 suggests a modest upside of 7.3%. The real attraction here is the stable dividend. (See AT&T’s stock analysis at TipRanks)

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