Are you ready to find some strong returns? That’s the point of investing, after all: getting a return on your money. With bonds trading low, and the Federal Reserve holding rates below two percent, investors are naturally turning to stocks. The result is a boon for the markets, as evidenced by the Dow Jones, S&P 500, and NASDAQ indexes at record highs. For now, stocks are where the returns are.
But not all stocks are created equal when it comes to returning on investors’ money. If you’re looking for steady gains, your best options are the reliable dividend stocks. Like bonds, these are instruments that will pay you back for putting money into them; but while bond rates are currently held down by Fed policy, dividends can offer much higher returns.
So how are investors supposed to determine which dividend names represent the most compelling investments? We recommend using TipRanks’ Stock Screener. The tool helped us pinpoint 3 Buy-rated names that each boast a dividend yield of more than 7%, while the average dividend yield of the S&P 500 stands at 1.88%.
Fortress Transportation and Infrastructure (FTAI)
You’ve heard of real estate investment trusts – companies that make money through the purchase, leasing, and management of landed property. Fortress is a twist on that. This company makes its profits through the acquisition of transportation infrastructure and equipment. Fortress owns aircraft assets in the aviation industry, oil distribution terminals, and over 300 railroad tanker cars in Texas, among other investments.
The aviation assets are the most lucrative for the company. According to FTAI’s Q3 earnings data, aviation leasing brought in over $185 million for the quarter, while other infrastructure and corporate activities showed net losses of nearly $65 million. The company was still able to declare $120.7 million in net earnings, and according to CEO Joe Adams, “We just put up record numbers in both net income and adjusted EBITDA. We see this momentum in profitability and cash flow continuing into 2020.”
From an investor’s perspective, that momentum is a good thing. FTAI maintains a high dividend, with an annualized payout of $1.32 and quarterly payments of 33 cents, making the yield an impressive 7.76%. The 30-cent EPS, however, shows that this cannot be maintained long-term. The company will need to increase profits in order to keep up the dividend payments going forward. Fortunately, FTAI beat earnings forecasts by wide margins in Q3 and in Q2, and there is no reason to doubt the company’s ability to keep up the dividend at least in the near- to mid-term.
Writing from JMP Securities, 5-star analyst Devin Ryan said, “Quarterly results for FTAI always include some noise, but the core trends underlying 3Q19 earnings appear to remain healthy.” Ryan rates FTAI an “outperform” along with a $24 price target, which implies an upside of 35%. (To watch Ryan’s track record, click here)
Stephens analyst Justin Long is also bullish, writing just after the quarterly release, “We were intrigued by FTAI’s conference call commentary regarding the potential to monetize some of its infrastructure assets as this could be a catalyst to improve shareholder value going forward…” Long set a $19 price target, more conservative than Ryan’s but still indicating an 7% upside potential. (To watch Long’s track record, click here)
It’s not often that the analysts all agree on a stock, so when it does happen, take note. FTAI’s Strong Buy consensus rating is based on a unanimous 3 Buys. The stock’s $21.67 average price target suggests an upside of 22% and a change from the current share price of $17.72. (See FTAI’s stock analysis on TipRanks)
Park Hotels & Resorts (PK)
Like many high-yielding dividend stocks, PK is a real estate investment trust. The company focuses on hotel properties. Park has been a public company since it spun off from Hilton Worldwide in 2017.
Park maintains a strong interest in Hilton hotels, owning Hilton properties in Chicago, Honolulu, New Orleans, and Orlando, as well as a 25% interest in the Capital Hilton in Washington, D.C. These are all prime vacation destinations, and are just a few of Park’s 52 properties. Park saw $2.7 billion in total revenues, and $477 million in net profits, from its hotels in fiscal 2018, a sign of the underlying strength of its niche.
While hotels in prime tourist destinations are valuable in and of themselves, Park also manages its investments wisely. The company shed 13 assets in 2018, describing them as “non-core.” The shed assets included 10 of 14 international properties, indicating a strategic move toward solidifying US business. The sale netted the company $519 million. More recently, in the Q3 conference call, CEO Thomas Baltimore said, “Less than three years after launching the company, we successfully executed on our long-term strategic plan by completing the acquisition of Chesapeake Lodging Trust, a $2.5 billion transaction that accelerates our progress toward achieving several long-term goals.”
REITs are required by US tax law to return as much as 90% of their income to shareholders, Park pays a quarterly dividend of 45 cents per share. This may not sound like much, but it comes out to a payment ratio of 137%, which would not be sustainable normally – except for that tax regulation requiring the high payout. Park’s dividend yield is 7.86%, which is nearly 4x the S&P 500 average.
Nomura analyst Brian Dobson writes of Park Hotels, “In 2020E, we expect management to improve results at recently acquired hotels by: 1) adding group occupancy, 2) increasing F&B/hotel margins, 3) right-sizing transient ADR & occupancy, and 4) repurposing underutilized square feet. We believe that PK has already thoroughly reviewed legacy Chesapeake properties and that changes should be implemented shortly.” The analyst added, “We remain positive on PK as its strategy to increase group occupancy and drive higher property-level margin continues to generate relative outperformance.”
Dobson suggests that if everything goes as planned, PK will be a $29 stock in the next 12 months, implying 24% return. (To watch Dobson’s track record, click here)
Richard Hightower, from Evercore ISI, is also bullish on Park. After the earnings conference call, he wrote, “As PK said on the call, it’s incumbent upon them to execute, and our view is that value is generally ascribed as value is earned.” In the same note, Hightower reiterated his Buy rating and $30 price target. That target suggests a 31% upside, so he clearly believes the company will execute. (To watch Hightower’s track record, click here)
Wall Street sizes up PK as a ‘Moderate Buy’ stock, as the bulls edge out the cautious on the stock. In the last 3 months, PK has received 4 bullish ratings versus 3 analysts hedging their bets, and one bear who doubts the company can secure a turnaround. The consensus price target hints there could be about 14% upside for investors, with the stock fetching $26.50. (See Park Hotels’ stock analysis on TipRanks)
Six Flags Entertainment (SIX)
After getting three upgrades last summer, Six Flags, the amusement park operator, is now in the midst of its down season. Q3 is typically the company’s best, as it encompasses the high-volume summer months, and while this year was no exception to the pattern, SIX disappointed investors by missing the EPS expectations.
Earnings came in at $2.11, down 20 cents from the forecast. Total quarterly earnings, at $200 million, were slightly below the $204 million from last year’s Q3. At the same time, revenues were up – the company brought in $621 million gross, $1 million more than a year ago. That gain came on attendance growth of 3%, but at the same time, park-goers were not spending as much as in previous years.
Company SEO Jim Reid-Anderson put a positive spin on the quarterly report, saying, “We were pleased to achieve record attendance and revenue for the first nine months of 2019… we are laser focused on achieving our tenth consecutive record year…”
In a boon for investors, SIX kept up its dividend payment, paying out 83 cents. This was in-line with the company’s dividend payment for the previous four quarters, and with Six’s 9-year history of maintaining or growing the dividend. The current yield is 7.39%. The payment ratio of 127% is a dark spot, especially going into the low-income winter months, but will likely be sustainable if park attendance continues to increase next year.
4-star Oppenheimer analyst Ian Zaffino describes the Q3 report as “disappointing,” but maintains his Buy rating on SIX. He writes, “Six Flags Entertainment Corporation (SIX) is the world’s largest regional theme park operator, with 25 locations across North America, including 22 in the United States, one in Canada, and two in Mexico…” He points out the company’s 2010 bankruptcy emergence, and adds, “The company now has a significantly delevered balance sheet.” Zaffino gives SIX a $63 price target, for a 44% upside potential. (To watch Zaffino’s track record, click here)
Also bullish is Eric Wold, from B. Riley, writing, “While we had previewed the potential for an upside quarter, we do not come away concerned with the 3Q19 miss and actually believe the improving membership base growth provides a more attractive set-up into 2020 and beyond.” Wold’s $67 price target suggests a robust 53% upside. (To watch Wold’s track record, click here)
Six Flags stock sells for $43.83, and the average price target of $56.57 indicates a 30% upside despite the recent down quarter. The Street’s consensus is a Moderate Buy, based on 5 “buys” and 3 “holds” set in recent weeks. (See Six Flags’ stock analysis on TipRanks)