Last year was volatile for the stock markets, but overall growth was strong. Stocks have hit record highs – the S&P 500 gained 28% for 2019, and has started 2020 with continued growth. The broad-based gains have investors feeling good – but a look ahead has them nervous.
Wall Street’s analysts don’t see the record-breaking growth run lasting much longer. In fact, the consensus among the top financial investment firms is that markets will gain a paltry 2% over the next twelve months. For investors who have grown used to reaping rewards from share appreciation, this is an unwelcome wake-up call. It also calls for a switch in strategy.
Dividends are the logical way to turn. These profit-sharing payments give investors a steady income stream – even when market gains are sluggish. As an added appeal, there is no upper limit to a dividend’s yield. After three Fed rate cuts in 2019, Treasury bonds are down to the 1.5% to 1.75% range – while the average dividend yield among S&P-listed companies is just about 2%. And there are plenty of stocks with higher yields.
Finding the right investment is key here. Just a high dividend yield won’t always cut it – investors should still seek a stock that will outperform. TipRanks, with its library of market and analyst performance data, has the perfect research tool to find just the right investment. The Smart Score brings together data from eight different sources and gives every stock in the database a single-digit score, on a scale of 1 to 10, to let you know at a glance how that stock is likely to move in the year ahead. The higher the number, the stronger the likelihood of outperformance.
We’ve used TipRanks’ search tools to pull three stocks for the year ahead. These are investments that are likely to outperform – and are already paying out high dividend yields. The details tell some interesting stories; let’s dive in, and take in the details.
Capital Product Partners (CPLP)
Capital Product Partners is shipping company, specializing in seaborne transport of cargo – mainly of containerized goods. The shipping container – those giant metal boxes used that have standardized ocean-going freight, rail transport, and trucking – has revolutionized freight cartage, and CPLC operates a fleet of 10 container ships. The company also operates one dry bulk carrier.
CPLP’s operations have been profitable, and in 2019 the company streamlined its operations by divesting its tanker fleet. The move, done in partnership with DSS Holdings, gives CPLP part ownership of the tankers without the direct costs of operations. On most of its container and bulk carriers, CPLP has operating agreements in place until 2022 and 2023, putting the company in a firm position to maintain both its carriage and its income stream. In Q4, the company announced an upcoming expansion of the fleet, with the purchase of three new container ships.
However, the recent Q3 results were mixed. Removal of two vessels from the fleet forced a 17% decline in revenue from Q3 2018, with the quarterly total coming in at $26.87 million. EPS was well below expectations, at just 18 cents, but was much improved year-over-year from a $1.33 per share loss.
Investors were not scared off by the quarterly report. Shares have registered gains since the earnings release, and the company has maintained its high dividend payment. The yield is 10.5%, more than 5x the market average. The absolute payment is modest, at 35 cents quarterly, but it annualizes to $1.40 per share – a reliable income for investors.
Writing on CPLP, B. Riley analyst Liam Burke points out the fleet expansion as reason for optimism on this stock. Burke notes, “The announced acquisition of the container assets provides a nice complement to the MLP's existing container vessels and Capesize vessels which are operating under medium- and long-term contracts, creating predictable underlying cash flows and stable distribution.”
Burke reiterated his firms Buy rating on CPLP shares and set a $14 price target, indicating a ~5% upside potential. (To watch Burke’s track record, click here)
CPLP’s most recent analyst reviews are all Buys, giving the stock a unanimous Strong Buy consensus rating. Shares sell for a bargain price, $13.31, and the $14.67 average price target suggests room for an upside of 10%.
CPLP holds a Smart Score of 8, indicating that outperformance likely lies ahead for the stock. Aside from a bullish analyst outlook, technical indicators show a positive trend in the moving averages along with a 73% positive momentum change over the past 12 months. (See CPLP stock analysis at TipRanks)
Broadmark Realty Capital (BRMK)
Next up on our list is a Real Estate Investment Trust (REIT) with a ‘perfect 10’ Smart Score. The REIT niche is popular with dividend investors. Due to tax laws, these firms are required to return a high percentage of their profits back to shareholders, and usually choose dividends as the vehicle. It makes these stocks a reliable income generator for investors.
Broadmark occupies the mortgage segment of the REIT sector, holding and investing in mortgages and mortgage-backed securities in the construction and development areas of the real estate industry. The company is new to the markets, as it was formed this past November through a merger between Trinity Merger Corporation and Broadmark real estate lending. The new company, ticketed as BRMK, started trading publicly on November 15. Since then, BRMK stock has gained almost 17% in share value.
While investors will like the appreciation generated so far, the company’s dividend is also top-notch. The company announced its first regular dividend in December, at 12 cents per share, and paid it out on January 15. And even better: Broadmark announced earlier this month a second dividend payment, of 8 cents per share, making its payout monthly rather than quarterly. At the current payout, the yield is a high 7.57%. Being a new stock, Broadmark has not had a chance to develop a long history of dividend payments – but it has made an excellent start. Income-minded investors should take note of this stock.
5-star analyst Tim Hayes, another financial expert from B. Riley FBR, is bullish on the future of Broadmark. He notes important developments in the US housing market and construction industries, writing, “The NAHB released its Housing Market Index (HMI), which exceeded economists' estimates and indicated that homebuilder sentiment is strongest in the West and South, regions that encompass BRMK's core markets… U.S. Housing Starts came in much stronger than economists' expectations... We believe both sets of data support the demand for construction debt capital, which should bolster BRMK's pipeline and pace of capital deployment…”
Hayes set a $13 price target on BRMK, suggesting a modest 2.5% upside potential alongside his Buy rating. (To watch Hayes’ track record, click here.)
So far, Broadmark has received two analyst reviews, and both are Buys. The stock’s fast share appreciation has pushed the price above the average target. That said, the Smart Score of 10 bodes quite well for Broadmark. The analyst ratings and technical factors are all positive, and market watchers should also take close note of the investor sentiment. This measures the stance of individual investors toward the stock – and it is highly positive. (See Broadmark stock analysis at TipRanks)
Enviva Partners LP (EVA)
The final stock on our list, Enviva, is a manufacturer of processed biomass fuel – wood pellets that are sold to industrial customers and used for power generation. They are a cleaner-burning alternative to coal as a fuel, with the added bonus of recycling a common waste product. The pellets can be manufactured from sawdust, woodchips, and other common debris from any wood-working industry.
The company’s production plants are located mainly in the Southeastern US, and manufacture over 3 million tons of wood pellets every year. The pellets are mainly exported, to customers in the UK and mainland Europe, and contribute to an overall 80% reduction in powerplant carbon footprints. A mark of Enviva’s success is its share appreciation: the stock grew 43% in 2019.
Q3 2019, the company’s most recent reported, showed strong revenue. At $157.4 million, it was up over 9% year-over-year. Total product sold, at 811,000 metric tons, was up 6.4% from the year-ago quarter. At the same time, net income slipped to $8.9 million. And for income investors, EVA declared its Q3 dividend at 67 cents. That annualized to $2.68 per year, for a yield of 7.13%. As discussed above, this puts the yield well over triple the S&P 500 average, and over four times the yield of Treasury bonds. Even better, EVA has been steadily raising its dividend since 2017.
Elvira Scotto, 5-star analyst with RBC Capital, reiterated her Buy rating on the stock after the earnings report. She wrote, “EVA's tightened 2019 guidance range implies slightly lower 2019 EBITDA vs previous guidance. However, we believe the slight reduction represents a slight shift in timing of shipments. We believe EVA and its sponsors' contract backlog provides significant visibility into long-term cash flow growth.”
Scotto’s price target, $39, suggests a modest upside of 4% from current levels. (To watch Scotto’s track record, click here)
This stock’s fast appreciation has limited its room for growth – but the strong dividend promises continued income for investors. It also doesn't hurt that EVA has a high Smart Score. The ‘8’ rating indicates likely outperformance is in store for the stock. Technical factors weigh strongly on the outlook, as they are highly positive. Analyst ratings, blogger opinion, and hedge fund interest also give the stock a boost. (See Enviva stock analysis at TipRanks)