In poker, blue chips carry the highest value, and the name has attached itself to the highest-quality stocks. The blue chips have a reputation for holding their value and providing a degree of defense to investors’ portfolios, making them attractive at a time of increased market volatility and generally falling share prices.
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The blue chip dividend payers are particularly attractive, as they combine the twin pillars of quality and long-term payment reliability.
So let’s follow this line, and take a look at two of the higher quality dividend stocks out there. These are stocks with years-long histories of keeping up reliable payments, more recent histories of dividend increases, and yields high enough to provide a degree of insulation against the current rate of inflation. It also doesn’t hurt that both stocks are admired by the analyst community, enough so to earn a “Strong Buy” consensus rating.
Enterprise Products Partners (EPD)
The first stock we’ll look at, Enterprise Products, is a midstream company in the energy industry. Its business is moving product, getting the crude oil, the natural gas, and the natural gas liquids pulled out of the ground by producers from the well heads and into the transport network of pipelines and transfer terminals and the storage infrastructure of tank farms and refineries.
Enterprise’s assets include a wide-ranging network of pipelines and storage sites, stretching from Appalachian gas fields of Pennsylvania, the Great Lakes region, the Southeast, and the Rocky Mountains, into Texas and the Gulf Coast region, where there are processing facilities, storage farms, refineries, and import/export terminals. It’s large scale business, and Enterprise commands a market cap of more than $55 billion.
More importantly than its business network or company size, Enterprise has seen its shares gain in this year’s volatile trading, with a year-to-date net increase of 27%.
These share gains have come as the company’s revenues and earnings have also grown. In the most recent quarterly earnings release, from 2Q22, Enterprise showed a top line of $16 billion, up significantly from the $9.4 billion reported in the year ago quarter, a year-over-year gain of 70%. The company’s earnings, net income attributable to shareholders, was reported at $1.4 billion, or 64 cents per diluted share, a gain of 25% y/y.
Enterprise is clearly confident after some two years of rising top and bottom lines; the company’s management bumped up the dividend payment in the last declaration, by ~6%, to 0.475 per common share. This payment, which went out on August 12, annualizes to $1.90 and gives a yield of 7.2%. Enterprise has a 14-year history of dividend growth and reliability.
All of this has caught the attention of Truist analyst Neal Dingmann, who holds a 5-star rating from TipRanks. Dingmann is impressed by Enterprise’s expansion of its business, and writes: “EPD continues to see strong activity on its pipelines and storage with potential for even more natural gas facilities/fractionators. Further, we anticipate little to no slippage in the $5.5B in projects with the majority coming on line next year. The Company maintains a stable, strong FCF generation business while still receiving upside from pricing differentials and commodity-based contracts.”
“However,” the analyst summed up, “we believe the market has not given EPD enough credit for its strong differentials and upside to commodity-based contracts.”
Dingmann’s upbeat outlook leads him to put a Buy rating on the stock, and his price target, of $33, implies an upside of ~25% for the year ahead. Based on the current dividend yield and the expected price appreciation, the stock has ~32% potential total return profile. (To watch Dingmann’s track record, click here)
Overall, Enterprise has a Strong Buy consensus rating from the Street’s analysts, and that rating is unanimous, based on 9 positive reviews set in recent weeks. The shares are selling for $26.36 and their $32.78 average price target indicates room for a 24% share gain over the coming year. (See EPD stock forecast on TipRanks)
Gaming and Leisure Properties (GLPI)
The second stock we’ll look at is real estate investment trust, a REIT, a class of company long known as powerful dividend payers. This firm, Gaming and Leisure Properties, puts a twist on the REIT model by focusing its investments on the acquisition and leasing of real properties for gaming operators. Gaming and Leisure has 57 properties leased to premier casino and gaming companies, across 17 states.
Gaming and Leisure has seen a modest gain this year, with shares up about 5%. This outperformance of the general markets has coincided with both solid revenue and earnings numbers, and an increase in casino gaming business as the economy has reopened after the pandemic.
In 2Q22, the last quarter reported, GLPI showed a top line result of $326.5 million, for a modest 2.7% year-over-year gain. This revenue supported a net income of $155.8 million, up more than 12% from the $138.2 million net income in the year-ago quarter. Per share, the diluted EPS was 61 cents, roughly in line with the 59 cents from 2Q21.
GLPI’s Board bumped up the dividend payment earlier this year, from 69 cents to 70.5 cents per common share. The dividend for Q2 was held at this level, which annualizes to $2.82 per common share and gives a yield of 5.7%. Gaming and Leisure has a history of keeping up reliable quarterly dividend payments going back to 2014.
In his coverage of this stock, 5-star analyst Joseph Greff, of JPMorgan, explains how GLPI’s model helps ensure the cash flow needed for a solid dividend: “We continue to like the stability of GLPI’s triple net lease REIT business model and its attractive, safe, and likely growing dividend given strong tenants profiles and rent escalators, and M&A related growth, supported by a strong balance sheet. This should make for an attractive risk-reward especially for risk-averse investors, with stability in rent collections that should continue to generate attractive free cash flow which will be deployed into tax efficient capital return, with an attractive dividend yield.”
Greff follows these comments with an Overweight (i.e. Buy) rating on the shares, and his price target, now set at $57, implies an upside of 15% for the next 12 months. (To watch Greff’s track record, click here)
All in all, of the 12 recent analyst reviews on file for GLPI, 10 are Buys and just 2 are Holds (i.e. neutral), giving the shares their Strong Buy consensus rating. The stock’s average price target of $55.40 suggests ~12% upside from the current share price of $49.58. (See GLPI stock forecast on TipRanks)
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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.
