Every retail investor wants to ensure a solid portfolio return. The only question is, how? The stock market produces a vast mine of data, that by its nature forms a barrier to access.
Some investors take a path of low resistance, and follow one or more market legends. These legends are the giants of the investing world, people like Steven Cohen.
The billionaire trader behind Point72 Asset Management has shown that he can survive the vicissitudes of Wall Street. After recovering from Federal investigations earlier this decade, he went back into the trading business and built Point72 into a $22 billion giant. And in the third-quarter he moved heavily into a few high-yield dividend stocks.
We’ve pulled up two of Cohen’s recent moves, and used the TipRanks database to take a closer look at them. These are strong dividend payers, with annual yields of at least 5%. We can turn to the Wall Street analysts to find out what else might have brought these stocks to Cohen's attention.
Plains GP Holdings (PAGP)
We’ll start with Plains GP Holdings, a mid-cap player in the oil and gas midstream business. Plains GP controls a network of assets, including some 19,000 miles of pipelines, 8,000 crude oil rail tankers, and 2,500 tractor-trailers, as well as 20 river transport tugs and 50 barges. The network stretches along the Rocky Mountain region from northern Alberta into Colorado, down to Texas and the Gulf, and up to the Mississippi. The company also has terminal and refining assets in the Great Lakes and Chesapeake Bay areas.
Plains GP reported $10.98 billion at the top line in Q3, and estimated its 2021 full year free cash flow at roughly $1.4 billion, an increase of $50 million, after making dividend distributions.
The solid cash flow supports the company’s dividend, which was declared for the current quarter at 18 cents per common share. This will mark the eight consecutive quarter at this payment level. The $0.72 annualized payment makes a yield of 6.8%, far higher than Treasury bonds, and more than 3x the average dividend yield found among S&P-listed companies.
Steven Cohen, in the last quarter, bought heavily into PAGP, picking up more than 1.66 million shares of the stock. At current prices, these shares are now worth $18.06 million. This is a new position for Cohen, and it is a substantial one.
In addition to Cohen, Well Fargo’s Michael Blum is a fan and sees the company's cash position as a key point here.
“The company generates one of the highest FCF yields in the sector and is likely to allocate more of this FCF to unitholders as leverage declines in 2022. PAA is one of a few midstream companies with a programmatic stock buyback program, lending visibility to future buybacks. We project PAA will repurchase 2-5% of market cap per year over the next 5-years," Blum noted.
To this end, Blum rates PAGP shares an Overweight (i.e. Buy), and his $14 price target indicates room for ~28% share appreciation in the year ahead. (To watch Blum’s track record, click here)
The rest of the Street concurs. PAGP's Moderate Buy consensus rating is backed by 4 Buy ratings, and 1 Hold and Sell, each. The average price target of $12.70 implies a 16.5% one-year upside from the current share price of $10.9. (See PAGP stock analysis on TipRanks)
Next up we have LyondellBasell, a global power in the chemical industry. This international company is the world’s largest player in the polyethylene and polypropylene technology space, owning the largest share of technologies and patents in the niche and profiting from licensing production. LYB also has a world-industry leading position in the production of polyolefin technologies, and has a large footprint in the more mundane refining of plastics and chemicals.
This chemical company is facing a series of headwinds that bode ill for the near- to mid-term. Prices in the core segments of polyethylene and propylene are going down, while the natural gas the company uses for ethane feedstock is rising in cost.
But there are bright points for investors. While EPS, at $5.25, missed the estimate of $5.78, revenues hit $12.69 billion in 3Q21, coming in above the $11.99 billion forecast, and amounting to the largest haul in the last two years, while growing 87% year-over-year. The company reported record cash flows from operations, at $2.1 billion, and used that to return ~$500 million to shareholders through dividends and share repurchases.
The dividend is currently set at $1.13 per common share, for an annualized rate of $4.52 and a solid yield of ~5%. That yield is nearly triple the average dividend found among peer companies, or the return on Treasury bonds.
Cohen, for his part, was impressed enough by this stock to purchase 136,101 shares. That’s a holding now worth $12.6 million.
LyondellBasell shares have also caught the eye of JPMorgan analyst Jeffrey Zekauskas who likes the company’s position via shareholder return potential.
“Lyondell’s dividend yield is 5%, and its finances are remarkably strong: its net debt to EBITDA ratio is about 1.4x based on our estimates of year-end 2022 values. The company throws off 14-15% of its share price in free cash flow. We think that the dividend yield and the free cash flow yield should be supportive of the LYB share price. We think that the adverse trends are to a good degree already discounted into the Lyondell share price,” Zekauskas noted.
To this end, Zekauskas rates LYB shares an Overweight (i.e. Buy) and has a $118 price target implying an upside of ~27% in the next 12 months. (To watch Zekauskas’ track record, click here)
Turning to the rest of the analyst community, opinions are split almost evenly. 6 Buys and 5 Holds add up to a Moderate Buy consensus rating. At $112.30, the average price target implies ~21% upside potential. (See LYB stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.