Barclays Recommends Buy These 2 High Yield Dividend Stocks, Including One With 9.5% Yield

Stocks started 2023 up 7% on the S&P 500 and up 13.5% on the NASDAQ. This is a good performance to start the year, but will it continue?

According to Emmanuel Cau, head of European equity strategy at Barclays, we may not be completely out of the woods yet.

“Despite the still volatile labor market, US data easing (ISM below 50, weaker housing data) seems to matter to the central bank response function, which now appears to be more balanced between fighting inflation and maintaining growth. You shouldn’t get carried away. , as central banks have made it clear that rate hikes are not over and will depend on the data,” Cau said.

A cautious approach may be prudent; investors may seek refuge in a defensive game that will provide some additional income to the portfolio. Dividend stocks are a common choice; if the return is high enough, it can make up for losses elsewhere.

Barclays 5-star analyst Teresa Chen has found two such names that deserve a second look. These are stocks with a dividend yield of 8% or higher, and both are potential winners in the coming months, according to Chen. Let’s take a closer look.

Magellan Midstream Partners (MMP)

The first company we look at, Magellan Midstream Partners, operates in the North American hydrocarbon sector, a vital center of the energy industry. Midstream companies like Magellan exist to move oil and natural gas products from production wells to distribution and storage networks spanning the entire continent. Magellan’s assets include approximately 12,000 miles of pipelines, tank farms and other storage facilities, and offshore terminals. The company’s network extends from the Great Lakes and Rocky Mountains to the great Mississippi Valley and the Gulf of Mexico.

Magellan just reported its Q4 2022 results and posted a quarterly net income of $187 million for the year. This is down from $244 million in the last year quarter, which means a 23% year-over-year decline. The current net income result was negatively impacted by a US$58 million non-cash impairment charge related to the company’s investment in the Double Eagle oil pipeline. Earnings per share was 91 cents per diluted share, down 20% from $1.14 in Q4 2021.

Magellan announced an increase in distributable cash flow (DCF), which is of direct interest to investors in terms of dividends. This is a non-GAAP measure that indicates a company’s resources to cover dividends, and in Q4 2022 it increased year-over-year from $297 million to $345 million.

And that brings us to dividends. Magellan announced a Q4 dividend of $1.0475 per common share, due on February 7th. At the current payout, the dividend yield is 8%, which is one and a half points higher than the latest inflation data. That’s enough to provide a real rate of return, but Magellan also offers investors a few other treats in the dividend bag: the company holds solid payouts, and management has a longstanding habit of raising annual dividends.

For Barclay’s Chen, this means the stock is worth the investor’s time and money. She writes: “We continue to view MMP as a quality MLP with over 85% cash flow commissions, a strategic footprint, a strong asset base, a proven track record of organic growth, a healthy balance sheet and one of the most competitive capital costs in our insurance coverage. … We believe MMZ will benefit both from a mid-2023 tariff increase on its petroleum products pipelines… MMZ also pays out a healthy return of 8% and is one of the few of our coverage that regularly uses free cash flow to buy back units “.

Chen then rates MMP stock as “overweight” (i.e. “buy”) with a target price of $59, suggesting 12 percent upside potential in the coming months. Based on the current dividend yield and expected price appreciation, the potential total return on the stock is around 20%. (To view Chen’s track record, click here)

What does the rest of the street think? There have been 11 analyst reviews of this stock in the last 3 months and they show a breakdown of 6 buys, 3 holds and 2 sells for a Moderate Buy consensus rating. (See Magellan stock outlook)

NuStar Energy LP (N.S.)

Next on our list is NuStar Energy, the premier limited liability company that operates pipelines and fluid storage facilities for hydrocarbons and other hazardous chemicals in the energy industry in the US and Mexico. NuStar boasts nearly 10,000 miles of pipeline and 63 terminals and storage facilities for crude oil and refined products, renewable fuels, ammonia and other specialty fluids. The company’s storage facilities can handle up to 49 million barrels.

For NuStar, this means big business. The company consistently reports quarterly revenues of over $400 million. In its most recent reporting quarter, Q4 2022, NuStar generated $430 million in revenue, up from $417 million a year earlier. For all of 2022, revenue was $1.68 billion, up from $1.62 billion in 2021.

While revenue growth was modest, Q4 quarterly net income of $91.6 million was up 59% year-over-year and set a record for the company. Diluted earnings per share were 18 cents compared to 19 cents in Q4 2021. For all of 2022, NuStar’s net income was $222.7 million, up from $38.2 million in 2021.

Turning to dividends, we first look at distributable cash flow. DCF here was $89 million for Q4 2022, up 41% from $63 million in Q4 2021. The stable cash flow has allowed the company to maintain a quarterly dividend of 40 cents per common share, a rate the company has adhered to since 2020. The annual payout rate of $1.60 per share gives these shares a dividend yield of 9.5%, 3 points above the latest inflation rate.

Speaking about Barclay’s stock, Chen says she remains optimistic about NuStar’s potential for future earnings.

Barclay’s Chen is impressed with NuStar’s performance in recent months, writing, “We continue to like the NS for its core offensive and defensive qualities. Demand remains robust for NS infrastructure assets in petroleum product infrastructure in Mid-Con and Texas, where driving is often the only mode of transportation… In the medium to long term, NS appears to be a strong player in energy transmission through its West Coast biofuel terminals and its pipeline system for ammonia as a potential supplier of renewable fuels”.

Chen is using these comments to support her Overweight (i.e. Buy) rating on the stock, while her $19 price target implies 12% upside potential in the coming year.

Overall, Street’s tone is more cautious here. Based on 1 buy, 2 hold and 1 sell, analysts currently rate this stock as a hold (i.e. neutral). (See NuStar stock forecast)

For good ideas for trading dividend stocks at attractive prices, visit TipRanks Best Stocks to Buy, a tool that brings together all of TipRanks stock analytics.

Denial of responsibility: The opinions expressed in this article are solely those of selected analysts. The content is for informational purposes only. It is very important to conduct your own analysis before making any investment.

Content Source

News Press Ohio – Latest News:
Columbus Local News || Cleveland Local News || Ohio State News || National News || Money and Economy News || Entertainment News || Tech News || Environment News

Related Articles

Back to top button