Mohamed El-Erian believes that inflation will remain at the level of 3-4%; Here are 2 “Strong Buy” dividend stocks that easily beat this rate

Although the Fed ended up adopting an almost unheard-of aggressive approach in its efforts to crack down on inflation, it was slow to do so, ignoring the initial data. Prominent economist Mohamed El-Erian says that if the Fed did not delay decisive policy, it could save millions of American households from unnecessary suffering. However, despite the “clumsy response”, fast forward to the present and see signs that inflation is cooling down.

While El-Erian warns of complacency and notes further “inflation complexity”, he believes one possible scenario moving forward is that the inflation rate “continues to decline but then gets stuck at 3-4% in the second half of the this year. ”

If this sticky scenario materializes, there is a way for investors to sidestep this bet by relying on dividend stocks, especially those that offer high returns. These classic protective actions not only protect against any volatility, but also allow you to outperform the current inflation rate.

With that in mind, we dug deep into the TipRanks database and pulled out two stocks with a specific set of clear attributes: a dividend yield of at least 9% and a Strong Buy rating from the analyst community. Let’s take a closer look.

Trust management of Starwood real estate (STWD)

The first high-yielding dividend stock we look at is Starwood Property, the largest commercial real estate investment fund (REIT) in the US. Being a subsidiary of Starwood Capital Group, one of the world’s largest private equity firms, certainly helps in this endeavor, and STWD has used this connection to acquire, fund, and manage commercial mortgages and other commercial real estate debt investments in both the US and and abroad. Over the years, the total capital deployed by the company has exceeded $93 billion, and Starwood currently manages a portfolio of assets totaling over $27 billion.

Given that they are required to pay out 90% of their taxable income to shareholders, REITs are known for their high dividend payouts, and this certainly is the case here. Starwood offers a quarterly dividend payout of $0.48, which translates into a superb 9.6% – more than four times the average S&P-listed dividend yield and easily outperforms the current inflation rate of 6.5%.

Starwood will report 4Q22 earnings on March 1, but we can look at 3Q22 results to get an idea of ​​the company’s financial position.

In Q3 2022, the company’s revenue was $390.54 million, up 29.2% year-over-year from $294 million in the previous quarter. Net income was $194.6 million, which is $0.61 per diluted share.

According to the company, 97% of infrastructure lending portfolios and 99% of commercial lending portfolios have floating interest rates, which makes them well associated with rising interest rates.

Given the current economic backdrop, this could be good for the company, says BTIG analyst Eric Hagen, who also likes the look of STWD “in both absolute and relative terms, especially around $20 a share.”

“We think that more support [STWD’s] valuation in response to rising interest rates… Another catalyst that we believe could unfold in the medium/long term is the acquisition of portfolios/companies that add new verticals or complement existing business segments and/or the potential spin-off of residential non-residential – QM business to achieve a larger scale. We believe that a spin-off transaction could be similar to what STWD did with SWAY in 2014, which unlocked the value of the platform,” Hagen said.

Hagen backs up these comments with a Buy recommendation and a $24 target price, suggesting the stock is up 20% in the coming months. Based on the current dividend yield and expected price growth, the potential total return on the stock is around 30%. (To view Hagen’s track record, click here)

Elsewhere on Wall Street, where one analyst chooses to sit with him and two others join Hagen in a bull club, the stock receives a Strong Buy consensus rating. The forecast calls for a 15% annual gain, given an average target price of $23. (See STWD Reserve Forecast)

Crestwood Equity (CEQP)

Next up is Crestwood Equity, the main operator of a medium-sized business in a limited partnership. That is, the company is engaged in the collection, processing, storage and transportation of oil and natural gas. Its assets are located primarily in the Williston, Delaware and Powder River Basins, with segments divided into Northern Gathering and Processing (Williston and Power River Basin), South Gathering and Processing (Delaware Basin) and Storage and Logistics.

In the third quarter, the latest quarterly report, Crestwood’s revenue rose 27.6% year-over-year to $1.57 billion, but still fell short of consensus by $60 million. The company recorded a net loss of $43 million compared to a net loss of $39.6 million in the same period last year, although adjusted EBITDA reached $209.3 million, an improvement from $139. $9 million received in Q3 2021 year-on-year. 50% increase.

The attractive aspect here is obviously dividends and their high yield. Earlier this week, CEQP paid a quarterly cash dividend of 0.655 per common share. On an annualized basis, this is $2.62, giving a 10% return.

While eyeing other collection and recycling companies, Crestwood is actively pursuing acquisitions and closed a number of deals last year, including acquisitions of Oasis Midstream Partners and Sendero Midstream. The company also sold two unnecessary assets.

Looking at Wells Fargo stocks, analyst Ned Baramov believes last year’s events have worked well for the future.

“After a year of weather-driven disruptions, acquisition/disposal activity, increased leverage above management’s target level and equity over CHRD, we believe CEQP’s divisions are set for strong performance in 2023,” Baramov wrote. “Capital expenditure is projected to decrease by $50-75 million compared to 2022 as CEQP’s current collection/processing capacity has room for growth and larger G&P projects in CEQP’s footprint are completed… We believe CEQP’s presence in in regions with growing/stable production (eg Bakken, Delaware and PRB), lower capital requirements and inflation-protected G&P contracts will maintain a valuation premium over its peer group G&P.”

Taking all of the above into account, Baramov rates CEQP shares as “Overweight” (i.e. “Buy”) to meet the $35 target price. If Baramov is right, in a year, investors will receive a profit of about 33%. (To view Baramov’s track record, click here)

Looking at the breakdown of the consensus outlook, with the ratings shifting from 6 to 2 in favor of a buy rather than a hold, this stock qualifies for a “Strong Buy” consensus rating. At $31.75, the average target is set for a 20% profit next year. (See Crestwood Stock Forecast)

For good stock trading ideas at an attractive price, visit TipRanks Best Stocks to Buy, a recently launched tool that aggregates all of TipRanks stock analytics.

Disclaimer: The views expressed in this article are solely those of a selected analyst. 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