Wells Fargo Favors These 2 High-Dividend Stocks

Step back, take a look at the bigger picture. The markets are up this week, with gains in all three main indexes amid optimism over a coronavirus stimulus bill.

At times like this, it is tempting to jump on a bandwagon and buy up the growth stocks, aiming to capitalize on the broader trends. But is that really the best play? Analysts from Wells Fargo are pointing out stocks with sky-high dividend yields from companies that have also demonstrated their commitment to keeping the payout reliable.

This type of high-yield reliable dividend payer is generally seen as a defensive portfolio move, shoring up income streams during the fat times, to be ready for the lean. After the year we’ve just had, perhaps it’s time to take Wells Fargo’s advice, and get into some old-school portfolio protection.

The TipRanks database sheds some additional light on two of Wells Fargo’s picks – stocks with dividends yielding 8% – and that the investment firm sees with 15% upside or better.

TC Pipelines LP (TCP)

Starting in the energy industry, TC Pipelines is, as its name suggests, a player in the midstream sector. The company, through its subsidiaries, owns and operates a network of natural gas pipelines in the US and Canada, and is responsible for transporting as much as 25% of all the natural gas used in North America. The company’s network links northern British Columbia and Alberta with the Great Lakes region and the Appalachian gas regions, and extends to ports on the US Gulf Coast.

TCP’s shares tumbled during this ‘corona crisis’ year, showing a 21% year-to-date loss. Revenues, however, have shown much lower volatility. The top line dropped 10% from the end of 2019 to its trough in 2Q20, and in Q3 bounced back to $99 million, a 4.2% sequential gain. Q3 earnings, at 90 cents per share, showed a 13% sequential gain and an 18% year-over-year gain.

During the quarter, the company also reported paying out cash distributions totaling $47 million. This included the 65-cent dividend per common share, a payment that has been held steady for over two years. In the longer view, TCP has a 21-year history of dividend reliability. At the current payment, the dividend annualizes to $2.60 per share and yields 8.2%.

Wells Fargo analyst Praneeth Satish wrote the review on TC Pipelines, saying, “TCP reported solid Q3 results. For the most part, flows and utilization levels have remained unchanged throughout the pandemic and expansion projects are largely on schedule/budget… We view the stock as fundamentally undervalued, given attractive yield, robust coverage and improved balance sheet.”

In line with these comments, Satish rates the stock an Overweight (i.e. Buy) and sets a $41 price target that implies an upside of 35% for the year ahead. (To watch Satish’s track record, click here)

The analyst consensus on TCP is not unanimous, but almost. The Strong Buy consensus rating is supported by 3 Buys against a single Hold. Shares sell for $30.39, and the average price target of $40.33 indicates an upside of ~33%. (See TCP stock analysis on TipRanks)

Golub Capital BDC (GBDC)

The second stock today is Golub Capital, a business development company in the middle market. Golub makes financing and lending solutions available to mid-market companies that might otherwise have difficulty accessing capital markets. Golub’s portfolio totals more than $30 billion in assets under management.

The company saw a steep and deep share price loss last winter, when the corona crisis hit the economy. Shares remained depressed until the beginning of May, but since then have been rising slowly. Starting from the May 4 trough, GBDC is up 53%. Year-to-date, however, the stock remains down 17%.

Quarterly results have been volatile this year. Q1 saw deep losses, Q2 saw a recovery, and Q3 showed a sequential drop-off to $98.1 million. EPS was solid, at 57 cents, a great improvement from the year-ago EPS loss of $1.02.

Golub paid out its common share dividend at 29 cents per share in Q3, the third quarter in a row at that level. The company has a reliable payout history, going back over a decade, and a habit of adjusting the dividend payment to keep it sustainable. The current payment annualizes to $1.16 per common share, and gives a yield of 8.4%.

Among the fans is Wells Fargo analyst Finian O’Shea. In his latest note on Golub, the analyst noted, “GBDC continues to see portfolio-level operating performance, constructive sponsor support, and improvement in those companies most affected by shutdowns as the economy reopens… In our view, GBDC is a high-quality Quartile 1 BDC with a shareholder friendly structure, strong asset quality, and scale through resources of the Golub Capital platform.”

In line with these upbeat comments, O’Shea rates Golub shares an Overweight (i.e. Buy), and his $16 price target suggests the stock has room for 16% growth next year. (To watch O’Shea’s track record, click here)

The Moderate Buy consensus rating on Golub comes from an even split between Buy and Hold reviews. The stock’s average price target is $16, matching O’Shea’s, and the current trading price is $13.75. (See GBDC stock analysis on TipRanks)

To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.