As the year winds down, it’s a good time to asses our portfolio for 2020. The US economy is still in a boom time, but there are some clouds on the international horizon. The Chinese and European economies are showing signs of slowing down, and there is some concern that a general global slowdown could metastasize to the US.
Dividend stocks offer a sound income-based option for investors who don’t want to exit the market but also want a shield to protect their income stream. Using the TipRanks Stock Screener tool, we’ve looked for stocks showing a ‘Very High’ dividend yield status – specifically, over 5%, a high enough yield to attract the interest of income-minded investors. To refine our search of the database, we also filtered our search to show only Buy-rated stocks with upside potential of 10% or higher.
From a database of more than 6,400 publicly traded stocks, the Screener found 185 that fit our search criteria – a much more manageable number, with plenty of interesting stocks to choose from. We’ve selected three, from a variety of business sectors, that offer solid combinations of high yield and room for growth. Let’s give them a closer look.
Capital Product Partners (CPLP)
Sometimes, the most genius ideas slip right by us, almost without notice. The guy who invented the now ubiquitous metal shipping container gave us one of those ideas. The container, with a few standardized sizes, makes loading and offloading easier and faster, and allows for larger cargo ships loaded to higher capacities. In short, the container revolutionized the shipping industry.
Capital Product Partners is one of the companies that has benefitted from the shipping container. The company engages in the seaborne transport of cargo – both containerized goods and dry bulk cargos. These are carried in a fleet of eleven ships – ten container carriers, and one dry bulk carrier. Capital has operating agreements on a majority of these vessels until 2022 and 2023. The company streamlined operations earlier this year by divesting its tanker fleet in an agreement with DSS Holdings. CPLP retains part ownership of the tankers, but no longer bears the cost of their operation.
In Q3, CPLP reported net income of $3.4 million. This translated to an EPS of 18 cents, a modest sum but a huge improvement from the year-ago number, which was a loss of $1.33 per share. Total revenue for the quarter came to $26.4, 17% down from Q3 2018. The company attributed the decline in revenue to the removal of two vessels from the carrier fleet.
The drop in revenue did not scare off investors. CPLP has shown a small gain since the quarterly report, as investors are attracted by the company’s profitable assets and strong dividend. The only dark spot is the EPS, which is not high enough to sustain the 32-cent per quarter dividend payment long-term. The company has been maintaining that payment over the past year, however, showing a commitment to sharing income with investors. The annualized yield is impressive, at 10.7%.
Liam Burke, writing on CPLP for B. Riley FBR, sees a clear path forward for the shipping company. He writes, of the industry’s future prospects, “The underlying environment for container and dry bulker vessels remains stable with the reduction in excess capacity in both fleets, which should also translate to healthy long-term charter rates. The underlying demand for commodities continues to grow steadily, while existing bulker capacity remains relatively tight.”
In line with this, Burke puts a Buy rating on CPLP shares with a price target of $14, implying a robust 19% upside potential. (To watch Burke’s track record, click here.)
CPLP shares have a Strong Buy from the analyst consensus, with 3 reviewers assigning Buy ratings in the last month. Shares are priced at a discount, trading for $11.71, and the $14.67 average price target suggests a clear upside of 25%. (See CPLP stock analysis on TipRanks)
Amplify Energy (AMPY)
Second up is an oil and natural gas drilling company. The energy sector in the US has been booming since 2008, when fracking methods began spreading through the industry, making accessible previously unrecoverable oil reserves. Amplify describes itself as an “upstream” company, meaning it deals mainly in directly acquiring properties and extracting the oil and gas resources from them. The company operates mainly in Texas and Louisiana, with additional operations in Wyoming and off the California coast.
On its various properties, Amplify operates over 1,400 active wells, with another 1,000 wells in development or inactive status. The company has more than 900 Bcfe (billion cubic feet equivalent – an industry term equating energy resources to the standard measure for extractable natural gas) in proven reserves. In August of this year, Amplify’s shareholders approved a merger-of-equals agreement with Midstate Petroleum. The combined company uses the Amplify name, and is headquartered in Houston, Texas.
Amplify started paying out a quarterly dividend in Q3 of this year. The amount is modest, at 20 cents, but it is a good start. The company’s share price is low enough that this initial dividend payment gives a yield of 14.2%. Compare this to the S&P average yield of just 2%, and the attraction is obvious.
Two Wall Street analysts have been impressed enough with Amplify to initiate coverage of AMPY with Buy ratings. Jeff Grampp, of Northland Securities, wrote, “We think AMPY is a differentiated E&P as it is currently generating significant FCF, which funds a meaningful quarterly dividend of $0.20/ Share. Its diversified, low-decline asset base is supportive of this business model and we believe the company can find accretive acquisitions, as it demonstrated by merging with peer, Midstates Petroleum in August 2019.” Grampp’s $10 price target implies an eye-opening 70% upside to AMPY shares. (To watch Grampp’s track record, click here)
Also bullish is Roth Capital analyst John White. White also sees AMPY’s free cash flow, based on quality properties, as the main driver for investor interest: “AMPY, in our opinion, presents a compelling investment case due to several major factors, among which are: 1) a unique financial strategy in the U.S. E&P sector devoted to a strong return of capital program involving dividends and stock buybacks, and 2) a set of oil and gas properties that are well suited to support this program.” White backs up his Buy rating with a $10.50 price target, indicating his confidence in an 86% upside. (To watch White’s track record, click here)
AMPY stock started garnering analyst interest after the Midland acquisition and initiation of the dividend – two moves that showed the company is following a solid plan. Both reviews, cited above, agree that AMPY is a buying proposition. The stock’s average price target, $10.25, suggests a powerful upside potential of 82%. (See Amplify Energy stock-price forecast on TipRanks)
Broadmark Realty Capital (BRMK)
Dividend investors will always be drawn to real estate investment trusts (REITs), as these companies are structured by law to return capital to shareholders. It is not uncommon to find REITs with dividend payout ratios (the comparison of the dividend to the EPS) approaching 85% or even higher. This would be unsustainable in most companies, but the tax code requires it in this segment, and the nature of REITs implies a steady cash flow to support the dividend.
REITs buy up and manage properties for commercial and residential purposes. Broadmark, a typical company in the mortgage sector of the business, specializes in the renovation of and subsequent development of acquired properties, and holds a diversified portfolio based on secured loans for real estate investors and developers. The company was formed in November as a result of the merger between Trinity Merger Corporation and Broadmark real estate lending. The new company started trading publicly on November 15.
As mentioned above, the tax code requires REITs to pay back a large proportion of income to investors as dividends. In compliance with this, Broadmark last week declared its first dividend, which will pay out on January 15, 2020 to all shareholders of record as of December 31, 2019. The dividend, at 12 cents per share, will be the company’s first under the BRMK ticker.
Initiating coverage of BRMK shares in November, when the stock began trading, B. Riley analyst Timothy Hayes took a bullish position. He reiterated his Buy rating last week, in his second note of the stock, writing, “[W]e believe the dividend is currently set at a level that does not reflect the true earnings power of the platform pro forma for deployment of capital acquired through the Trinity merger and for private AUM growth. As such, we expect the dividend should steadily increase over the course of FY20 as earnings power increases, resulting in a much more attractive dividend yield than the current annualized dividend implies.”
Backing up his Buy rating, Hayes gives BRMK a $13 price target, implying room for 9.5% share appreciation in the next 12 months. (To watch Hayes’s track record, click here)
Being a new ticker in the stock market, BRMK has not had time to attract a lot of Wall Street love – but in its first four weeks of trading it has received two Buy ratings. At $12.50, the average price target indicates an upside potential of 5.3% from the $11.87 current trading price. (See Broadmark stock analysis on TipRanks)