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2 dividend stocks that yield at least 7%; Analyst Says “Buy”
The stock market pulled back from its all-time high this week as investors paused to consider what stocks have lost – and what the future may hold. A spate of stimulus money unleashed by the high spending by the Biden government will push GDP growth to 9% in Q3 21, but it appears to decline next year as spending takes its course. Economists are forecasting GDP growth of 5.5% for the next year. This is a bad sign for cyclical stocks, which tend to mirror macro volatility. As Mike Stanley, chief US equities strategist at Morgan Stanley said, “The maximum rate of change in economic data and earnings revisions … all add to the deterioration in the quality of lower quality, lower capitalization and the more cyclical parts of the market.” Dividend stocks are more stable than cyclical stocks, however, and while their average returns are lower, they offer the benefit of a constant rate of return regardless of economic conditions. B. Riley’s analyst Matthew Howlett has looked into the real estate trust segment, a group of stocks long known for high and reliable dividends. Howlett pointed out two stocks in particular that have dividend yields greater than 7% and deserve a buy rating. Ladder Capital Corporation (LADR) With Ladder Capital, a specialist in commercial mortgages, we will take a step into the Real Estate Investment Trust (REIT) niche. Ladder operates in 48 states and 475 cities. The average loan size is $ 19 million and the company has securitized or sold a total of $ 16.7 billion in commercial loans. The business is supported by company assets of $ 5.9 billion. Ladder Capital has seen a number of headwinds over the past year. The corona pandemic was of course the biggest crisis – but for a commercial mortgage lender the problem was broader. Loan customers took their own hits and found they were unable to make payments. As a result, Ladder saw a sharp decline and higher volatility in Q2 2020 compared to 2019. On the positive side, Ladder closed 2020 with $ 1.25 billion in cash. Revenue was $ 77.9 million for the final quarter of 2020, compared to $ 135.4 million in the fourth quarter last year. Distributable earnings, however, came in at $ 4.9 million – and the company declared a dividend of 20 cents per common share that was paid on April 15th. This was the fifth quarter in a row with a dividend at this level. The current payment is 80 cents per share and gives a return of 7%. Despite the challenging economic environment, LADR shares are up an impressive 79% in the past 12 months. B. Riley’s Matt Howlett expects the momentum to continue and sees Ladder with solid foundations to move forward. “[The] The company’s lender has been a leading CMBS lender since the 2008-2009 financial crisis and is well positioned to contribute to LADR’s earnings growth as the conduit market rebounds from the pandemic, “said Howlett. Howlett is particularly fond of the company’s cash position, noting that it “should allow the company to accelerate the growth of its core investment portfolio”. The analyst sees upside potential for the dividend (expected to rise to USD 1.05 by 2022) as originations grow steadily and debts with higher costs (Koch / Legacy CLO) pay off. “Howlett backs these comments with a Buy recommendation and sets a price target of $ 14 to suggest room for 21% growth over the next 12 months. (To see Howlett’s track record, click here.) Overall, Wall Street analysts gave Ladder a moderate buy rating based on 6 recent ratings that include 5 purchases but also a single sale. LADR stock is currently priced at $ 11.58, with an average target of $ 12.58 suggesting upside potential of 9% this year. The real attraction for investors here is the strong dividend yield. (See LADR stock analysis on TipRanks) Cherry Hill Mortgage (CHMI) Second stock, Cherry Hill, is another REIT focused on the residential real estate markets. Cherry Hill’s portfolio includes mortgage servicing rights, mortgage-backed securities and other mortgage investments in the residential real estate market. After a sharp drop in earnings in the first quarter of last year to a loss of $ 2.80 per share, Cherry Hill has seen sequential growth for the past three quarters. In the fourth quarter of 2020, EPS returned to positive values with a pressure of 37 cents per share. Like most REITs, Cherry Hill pays a reliable dividend. The company has been keeping payments since the fourth quarter of 2014 and adjusting them if necessary to align with earnings. For the final quarter, the dividend was set at 27 cents per common share, or $ 1.08 per year. At that rate, the dividend comes in at an impressive 11.5%. The strong defensive characteristics and attractive dividend yield of CHMI brought this to the attention of B. Rileys Howlett. “[We] believe that the portfolio is better isolated from base risk and would perform better in an environment of rising interest rates … We believe that CHMI’s strong liquidity profile puts it in a strong position to capitalize accurately in the first half of 21, ”said Howlett . The analyst continued, “We expect: 1) slower prepayment speeds and 2) lower maintenance costs in 2H21 to be the main drivers for higher core ROEs going forward. Our forecast for ROE of 12.5% for 2022 should allow the company to increase its quarterly dividend to $ 0.30 based on our model. “In line with his bullish outlook, Howlett rates Cherry Hill with a buy. Its target price of $ 11.50 implies the stock can gain 21% over the next 12 months. CHMI has slipped under the radar of most analysts. The stock’s consensus on a moderate buy is based on only two current ratings. Buy and keep. For stocks trading at $ 9.43, the average target price of $ 10.75 suggests an uptrend of 14%. (See CHMI 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 the insights into TipRanks’ stocks. 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.