Putting together a strong portfolio is more an art than a science. You have to balance share appreciation, potential upside, fundamental strength, and dividend yield to find the stock that will meet your needs. Do you want your investments to pay for themselves right away, or do you prefer a steady long-term gain? These are just a few of the factors to consider.
It’s complicated by the sheer size of the stock markets. TipRanks tracks data on over 6,500 publicly traded stocks – and that’s just the tip of the iceberg. Fortunately, the Stock Screener tool makes it easy to find the right investment. Set the filters to sort out the stocks with a “Strong Buy” consensus rating, add in ‘very high’ dividend yields, above 5%, and you’ll get the list down to only a handful of names. Here are three of them that may be worth your attention.
The oil and gas midstream sector – that is, the companies that move the product between the wellheads, storage farms, terminals, and the customers – is a profitable niche. The companies here control pipelines, railroad assets, river barges, terminals, and storage tanks, as well as make it possible to move fossil fuels. Enterprise Products owns and operates 50,000 miles of such pipelines, and controls storage capacity for 160 million barrels of oil and 14 billion cubic feet of natural gas. Enterprise also holds import/export terminal facilities on the Gulf Coast of Texas.
Low prices for oil and gas in 2019 hurt the company’s bottom line last year, but EPD appears to be holding up well. Even though the Q3 numbers missed the estimates, Q4, reported last week, was strong. Revenue came in above the forecast, at $8.01 billion, while the EPS of 54 cents was in-line with expectations. Both numbers are down year-over-year but up sequentially.
Enterprise is committed to sharing profits with investors, and pays out a regular – and reliable – dividend. With a yield of 7%, the dividend provides a return more than three times higher than the S&P 500 average, while the 81% payout ratio indicates that it is sustainable for the company. EPD’s history of dividend reliability goes back over 10 years.
5-star analyst TJ Schultz, of RBC Capital, sees EPD as a solid choice for investors. He writes, “EPD offers investors broad exposure to a full spectrum of the midstream value chains for NGLs and, increasingly, crude and petrochemical products. Furthermore, the partnership's multi-year organic growth backlog helps provide visibility on long-term distribution growth. EPD has grown and should continue to grow its fee-based cash flows as announced projects enter service and ramp.”
Schultz puts a $36 price target on EPD, implying an impressive upside potential of 41%, to back up his Buy rating on the stock. (To watch Schultz’s track record, click here)
Overall, EPD gets a Strong Buy from the analyst consensus, and that rating is unanimous. The stock has received 7 buy ratings in recent weeks. Shares are a bargain considering the high yield, priced at $25.56. The average price target of $34.50 suggests room for an upside of 35%. (See Enterprise Products stock analysis on TipRanks)
Kimbell Royalty is another player in the Texas oil boom, operating at the source. Kimbell owns oil and gas operations in 28 states, with major exploration, drilling, and extraction activity in the Permian Basin and Eagle Ford areas of Texas, North Dakota’s Bakken formation, and across Appalachia. Kimbell’s largest area of activity, which includes 43% of the company’s active wells, is in the Permian Basin of Texas.
Where Enterprise, above, saw a tough time in 2H19, Kimbell posted record high revenue in Q3 of that year. The top line came in with a 79% year-over-year gain, to $33 million. In addition to high revenues, KRP was able to acquire two competing companies, Haymaker and Phillips, during the reporting period.
Even better for investors, KRP has been using its positive cash flow generation to maintain a strong dividend. The company’s quarterly payment, 38 cents, annualizes to $1.52, for an impressive yield of 11.1%. That’s more than five times the average yield among S&P listed companies, and is powerful incentive for investors.
Looking at Kimbell for KeyBanc, analyst Leo Mariani was impressed enough by the company’s performance to initiate coverage with a Buy rating. He cites, “…anticipated dividend increases in 2020 and the recent pullback in the shares…” as reasons to enter this stock.
Mariani gives KRP an $18 price target to back the Buy rating, seeing room for 31% share growth here. (To watch Mariani’s track record, click here)
The Strong Buy consensus view on KRP shares is bolstered by 8 recent reviews, including 7 Buys and 1 Hold. The stock sells for just $13.70, and the average price target of $20.14 suggests an upside potential of 47%. (See Kimbell stock analysis on TipRanks)
The energy industry isn’t the only place to find great dividend yields. Investment management companies, which control and administer private and corporate investment portfolios for profit, by nature generate a high cash flow. New Mountain uses its cash flow to maintain a dividend, returning profits to investors.
The dividend here is definitely worth talking about. NMFC pays out 34 cents per quarter, and has done so consistently since 2013. This gives a yield of 9.6% and an annualized payment of $1.36. The payout ratio is 98%, indicating that New Mountain returns all of its profits to investors – as expected, in an investment management company.
Like Kimbell, above, New Mountain has attracted a new analyst thanks to its solid financial performance. Derek Hewett, from Merrill Lynch, writes in support of his Buy rating, “We see an attractive dividend yield, and believe New Mountain is well positioned to capitalize on a supply/demand imbalance in the unrated middle market.”
Hewett’s price target, $14.50, suggests a modest upside of 2% in a stock that has already shown 4% appreciation so far this year. (To watch Hewett’s track record, click here)
With 3 recent Buy reviews, NMFC’s Strong Buy analyst consensus rating is unanimous. The stock offers a low cost of entry, at $14.23, and the average price target of $14.58 implies room for another 2.5% growth. The real benefit here is the dividend return. (See New Mountain stock analysis on TipRanks)
