After hefty gains in 2019, when the S&P 500 added 29%, most analysts are predicting that markets will show decidedly more modest gains in 2020. The consensus view is, that stocks will appreciate between 3% and 5% in the coming year. While it’s not a gloomy picture, it does mean that investors will need to look outside of share prices for strong returns.
This will naturally pull many investors right into dividend stocks. The reasons are simple. Interest rates are low, after 3 Fed cuts in 2019 brought them down to just 1.5% to 1.75%. With the Fed’s key rate pared so far back, Treasury bond yields are also low, holding between 1.5% and 2%. Among S&P listed companies, the average dividend yield of 2% still beats interest rates and bond returns. And remember: there is no ceiling on dividend yields.
We’ve used TipRanks’ Stock Screener tool to seek out small- and mid-cap stocks with high dividends – that is, with yields exceeding 6%. To narrow it further, we looked only at stocks with ‘Strong Buy’ consensus ratings. TipRanks has a database encompassing over 6,500 stocks; our search parameters narrowed that down to 30. Here is the low-down on three of those.
Hess Midstream Operations (HESM)
The energy industry, especially the crude oil and natural gas extraction activities, has given a turbo boost to the US economy in recent years. Providing jobs and energy at the wellheads, in the midstream, and at the customer’s point of purchase, energy products also provide the fuel of our daily lives.
Hess Midstream provides infrastructure system for oil companies in the Bakken Shale of North Dakota and Montana. The company owns a variety of assets, including crude oil, natural gas, and water gathering pipelines, pipeline and rail line terminal facilities, and natural gas plants.
Last month, Hess completed an organization change that marked its transition from a small-cap limited partner to a mid-cap independent midstream operator. The company conducted a merger between the midstream operator branch and the corporate partnership. In short, Hess Midstream Partners successfully acquired Hess Infrastructure Partners. The HESM ticker inherited HIP’s market history. Shares are up 15% since the December 16 announcement.
The company didn’t just reorganize and simply its partnership – it also maintained its lucrative dividend. HESM currently pays out 41 cents per quarter, and has raised that dividend payment every quarter since August 2017. At $1.64 annualized, the dividend gives a yield of 6.91%, well over triple the average in the broader market.
Writing from Credit Suisse, market analyst Spiro Dounis says of final quarter projections, “We expect sequentially higher results, largely driven by volume ramp on LM4 and continued strength in Tioga volumes as spare capacity is backfilled with third-party volumes.” He adds that, “This should be a noisy accounting quarter with HESM reporting consolidated results for the first time following the close of the HIP acquisition on December 16.”
Dounis is upbeat about HESM, and gives the stock a $26 price target, indicating room for 10% growth to the upside. (To watch Dounis’ track record, click here)
HESM has built its Strong Buy consensus rating on solid performance which has attracted 3 "buy" ratings in the last three months, as opposed to only 1 "hold." This stock is selling for $23.91, so the $26.50 average price target implies an upside of ~11%. (See Hess Midstream stock analysis at TipRanks)
Summit Hotel Properties (INN)
Next on our list is a Real Estate Investment Trust, a natural stock to consider when looking for high dividends. REITs are holding companies for properties, and derive their earnings and profits from management fees and rents. Summit owns 73 non-food service hotels around the United States, with over 10,000 rooms available, serving middle and upscale customers.
Last spring, Summit announced a sale of six hotels, in various locations around the country and under several different brands and totaling over 800 guest rooms, for a total of $135 million – netting the company a profit of $36.6 million. The sale of the six hotels was part of a capital improvement plan, and net proceeds were used to pay down debt carried on the company’s revolving credit facility. Summit currently has access to $395 million in credit.
A strong credit line is not the only strength to INN shares. The stock gained 35% in 2019. And, Summit complies with US tax codes that require REITs to return profits to shareholders – by paying out a generous dividend. The 18 cents per share paid out quarterly annualizes to 72 cents, but even better, implies a yield of 6.2%. INN pays out a dividend three times higher than the S&P average.
5-star analyst Wes Golladay, from RBC Capital, is impressed with Summit’s management. He writes of the stock, “We like INN's platform as the company has been able extract value at the property level including implementing ideas that were a first for the hotel brand. We remain impressed with the asset recycling, which improves what we believe is already a high-quality portfolio.”
Golladay puts a Buy rating on INN, and his $13 price target implies an upside of 12%. (To watch Golladay’s track record, click here)
Summit’s Strong Buy consensus rating is unanimous, based on 3 Buy ratings recently given. The $11.62 trading price is a bargain, considering the high dividend return, and the $13.50 average price target suggests an upside potential of 16%. (See Summit stock analysis at TipRanks)
Gaming and Leisure Properties (GLPI)
The third company on today’s list is another REIT, this one specializing in casino properties. Pennsylvania-based Gaming and Leisure owns 43 casino properties, and operates 2 of them directly. The company is also involved in the mortgage financing of 2 additional casino properties. Casino gaming is both popular and lucrative, and GLPI shares have been gaining steadily for the past five years.
Momentum is on GLPI’s side in other ways, too. The company has beaten EPS forecasts in each of the last four quarters, and the upcoming Q4 2019 report is expected to show 85 cents per share in bottom line earnings. That’s 1-cent higher than the year-ago number.
High earnings make this REIT’s high dividend easily sustainable. GLPI pays out 70 cents per quarter, which the earnings, at over 80 cents, can readily fund. The annualized payment of $2.80 gives the dividend a yield of 6.05%. GLPI has been raising the dividend periodically for the past five years.
Carlo Santarelli, 5-star analyst with Deutsche Bank, took a bullish stance on this stock recently, but strong share appreciation has pushed the stock value right up to his price target. Santarelli pointed out several points supporting optimism: “1) GLPI shares have broadly outperformed gaming triple net peers, which is generally a fairly good place to start when arguing for change, 2) GLPI governance is strong, 3) GLPI’s historical deal activity has been best of breed in terms of accretion generated on a deal by deal basis…”
Santarelli’s price target of $46 may be obsolete, as the stock has a current price of $46.31. His rating here is, of course, a Buy. (To watch Santarelli’s track record, click here)
With 5 recent Buy ratings, and only 1 Hold, GLPI gets a Strong Buy from the analyst consensus. As noted, shares are selling for $46.31 after rapid gains in recent weeks. This price is just a shade below the current average price target of $46.58, suggesting a mere 0.59% upside. Expect analysts to recalibrate their price targets here in coming weeks. (See Gaming and Leisure stock analysis at TipRanks)