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Billionaire David Tepper is betting on these 2 dividend stocks with strong buy
Anyone trying to keep track of the direction of the markets can be forgiven for showing signs of dizziness. Markets have been forcibly pulled in opposite directions recently, making it difficult to develop a coherent investment strategy. It is time for some expert advice to paint a clearer picture. Hardly anyone on the street is as respected as the billionaire David Tepper. Co-founder of global hedge fund Appaloosa Management, Tepper is known for his sassy and confident style that could come in handy in today’s confused climate. Tepper made his fortune – and built his hedge fund – by investing in distressed assets and benefiting heavily when markets later reversed. And, with $ 14 billion in fortune under Appaloosa, it goes without saying for Wall Street to get noticed when Tepper has something to say. “Basically, I think interest rates have made the most of the move temporarily and should be more stable over the next several months, which makes it safer to be in stocks for now,” noted Tepper. Believing rising interest rates should level off, the billionaire points out that with the Senate approving the coronavirus stimulus package, it is “very difficult to be bearish” right now. With that in mind, we opened the TipRanks database to identify two of Tepper’s most recent new positions. These are Strong Buy stocks – and perhaps more interestingly, both are strong dividend payers with annual returns greater than 7%. We can reach out to Wall Street analysts to find out what else might have drawn Tepper’s attention to these stocks. MPLX LP (MPLX) We’re starting with a long-established name in the energy sector. One of Big Oil’s giants, Marathon Petroleum, operates in the United States, the Rocky Mountains, the Midwest and along the Gulf Coast, transporting oil and natural gas products from the wells to the storage and distribution facilities. MPLX benefited from the general economic reopening in the second half of 2020, with inventory growing as more people returned to work and demand for fuel increased. Overall, stocks are up 98% over the past 12 months. The bottom line is that revenue recovered from a decline in the second quarter of 20, increasing 8.5% to $ 2.17 billion by the fourth quarter. The result, which was very negative in the first quarter of 20, rose steadily in the further course of the year and was 64 cents per share in the fourth quarter. Perhaps the most important metric for investors, however, was MPLX’s net cash position. For the full year 2020, the company generated $ 4.5 billion in cash, of which more than $ 3 billion was returned to shareholders. In its most recent dividend statement, the company announced a payment of 68.75 cents per common share, or $ 2.75 on an annual basis. This gives a yield of 10.5%, well above the average yield. And David Tepper bought heavily in MPLX last quarter, adding more than 3.45 million shares of the stock. At current prices, these stocks are now worth $ 89.77 million. As mentioned earlier, this is a new position for Tepper, and it is an essential one. 5-star analyst TJ Schultz, who covers this stock for RBC Capital, believes the company’s strong balance sheet warrants positive sentiment. “[We] I think MPLX is well positioned to continue steady cash flow and payouts through 2021+. Management reaffirmed MPC’s commitment to extending MPLX contracts. Some slight price drops on short term renewable inland vessels, but the clunkier contracts were either set more recently (longer runway) or are already tied to FERC oil dynamics. We like MPLX’s improved FCF profile and solid balance sheet, which we believe will give management more opportunities to return value by repurchasing shares over the next year, “wrote Schultz. To that end, Schultz is giving MPLX a target price of $ 29 what means an uptrend of 12% (To see Schultz’s track record, click here) The sharp appreciation of MPLX stock has brought the stock price close to its average target price, with stocks now selling for $ 25.92 with an average target on the Stock has a strong buy consensus rating based on 5 buys and 1 holds in the past 3 months (See MPLX stock analysis on TipRanks.) Enterprise Products Partners (EPD) Staying We will become another midstream company in the energy sector which caught the attention of Tepper, Enterprise Products Partners, a major one with a market cap of $ 50 billion A midstream player and operates a network of assets including more than 50,000 miles of pipeline, storage for 160 million barrels of oil and 14 billion cubic feet of natural gas, and shipping terminals on the Texas Gulf Coast. The story here is similar to that for MPLX. The company was hurt by the lockdowns to fight the COVID pandemic, but there has been a rebound in share value and earnings over the past six months. Shares are up 40% during that time, while fourth-quarter sales were back above $ 7 billion. Overall, Enterprise’s 2020 performance was down from 2019 – but one key metric showed a gain. Of the company’s total cash flow, it was $ 5.9 billion, and it was $ 2.7 billion in free cash flow (FCF) or cash flow available for distribution. That was an 8% increase over the previous year and allowed the company to maintain its regular dividend payment – and even increase the payment in the latest statement from 44 cents per common share to 45 cents. With an annualized payout of $ 1.80 per share, that’s a robust 7.7% return. Tepper’s new position in the EPD is remarkable. The hedge fund leader bought 1.09 million shares for his first position, a purchase that is now worth $ 25.23 million. JPMorgan analyst Matt O’Brien is on the bull’s side, reiterating a buy recommendation and a price target of $ 28. This goal conveys his confidence in the ability of the EPD to reach 20% from the current level. (To see O’Brien’s track record, click here.) “Given the slowdown in investment needs, EPD expects positive discretionary free cash flow in 2H21, enabling full investment funding, growing cash distributions and opportunistic buybacks. Overall, we continue to believe that EPD offers the optimal mix of offense and defense, with attractive embedded operational leverage, remarkable barriers to entry, low leverage, and world-class financial flexibility, ”commented O’Brien. Wall Street analysts can be controversial – but if they come to an agreement on a stock, it is a positive sign for investors to take note. It does here because all of the recent EPD reviews are purchases, making the consensus rating a unanimous strong buy. The analysts have given an average price target of USD 27, which is an upward movement of ~ 15% compared to the current share price of USD 23.38. (See EPD stock analysis on TipRanks.) To find great ideas for trading dividend stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, ‘a newly launched tool that brings together all of TipRanks’ stock insights. Disclaimer: The opinions expressed in this article are solely those of the presented analysts. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.