2 ‘Strong Buy’ Dividend Stocks With at Least 8% Dividend Yield

While the summer months are proving to be less lucrative for stock market participants, the overall trend this year has been upward.

However, JPMorgan’s global strategist, Dubravko Lakos, has recently sounded the alarm, pointing out several headwinds that are piling up, which he sees as placing a solid cap on market gains.

First, Lakos points out that stock prices are high relative to earnings. Second, he adds that sentiment is too bullish, having reversed too sharply from last year’s bearish mood. Third, Lakos notes that the Fed is likely to stick with its tight monetary policy and may even raise rates again later this year.

Adding to all of that, Lakos believes that spending – both consumer and Federal – will slacken in the coming months. The era of COVID-related Federal spending is behind us, and consumers’ savings are rapidly dwindling in a high-inflation environment. Both factors will stifle spending, which has long been the engine of the economy.

All of this should renew interest in strong defensive plays, especially high-yield dividend stocks. These stocks offer both protection and passive income during a challenging turn.

Wall Street analysts would seem to agree, as they’ve been tagging high-yield dividend payers as potential winners. Let’s examine two of these picks: Strong Buy stocks with at least 8% dividend yields. Here are the details, drawn from the TipRanks database, along with recent analyst comments.

Energy Transfer LP (ET)

The first stock we’ll look at is Energy Transfer, an important midstream company in the North American oil and gas industry. Energy Transfer’s operations are based on a wide range of assets, including natural gas and crude oil gathering, transport pipelines for petroleum, natural gas, natural gas liquids, and refined products, and processing, storage, and terminal points for oil, gas, and their derivatives. These assets are centered in Texas-Oklahoma-Louisiana, and extend to the northern Plains, the Great Lakes and Mid-Atlantic regions, and Florida. The company boasts that it offers its customers ‘wellhead to water’ transport options.

Energy Transfer is a giant among North America’s midstream operators, with a market cap exceeding $40 billion; the company’s maintenance budget alone exceeds $740 million. And, ET recently announced a move that will expand its network and its industry presence. This past August 16, Energy Transfer and Crestwood Equity together made public an agreement for ET to fully acquire Crestwood. The transaction, valued near $7.1 billion, will be conducted entirely in stock and is expected to close during 4Q23, subject to shareholder and regulatory approvals.

The pending Crestwood acquisition will expand Energy Transfer’s asset network in Texas, and will give the company an opening to the Powder River basin in the Great Plains.

Prior to the acquisition announcement, Energy Transfer released its 2Q23 financial results. The results disappointed, missing the forecasts and declining year-over-year at both the top and bottom lines. On revenue, the company had $18.3 billion at the top line, falling 29% y/y and coming in $2 billion below expectations. At the bottom line, ET reported an EPS of 25 cents per diluted share. This was 14 cents below the EPS reported one year earlier, and missed the estimates by 7 cents per share.

Even though revenues and earnings were down, ET retained its ability to generate strong cash flows. The company had $1.55 billion in cash flow from operations in Q2.

Despite the earnings miss, Energy Transfer has slightly raised its quarterly dividend payment by a modest 0.25% per share, to 31 cents per common share. The dividend was paid out on August 21st; its annualized rate of $1.24 per common share provides a robust forward yield of 9.58%.

Turning to the analysts, we find that Justin Jenkins, of Raymond James, has taken a deep dive into the company’s Crestwood acquisition. The 5-star analyst writes, “Though somewhat surprising, we like the industrial logic of the deal and the theme of consolidation more broadly… ET has a fully integrated asset base that can extract value in the downstream NGLs logistics space after aggregating gas/NGL supply further upstream via with CEQP (which CEQP could otherwise not achieve). CEQP has simplified its structure, eliminating most of its JVs, shedding its lower growth G&P assets, and repositioning itself as an associated gas supply-growth story – well suited for the ET to pursue said strategy. The teams highlighted a very conservative $40 million in synergies, which essentially just reflects lower G&A costs of consolidating to one public company. In addition to obvious commercial synergy potential, we expect at least some financial synergies over time – mainly from recapitalization efforts based on ET’s higher rated credit and lower cost of capital vs. CEQP.”

So, down to business, what does all this mean for investors? Jenkins rates ET shares as a Strong Buy, with a $17 price target to imply a 31% upside over the next 12 months. (To watch Jenkins’ track record, click here)

Overall, ET maintains its Strong Buy consensus rating with 7 unanimously positive recent analyst reviews. The stock is selling for $13.04 and its $17.71 average price target suggests it has room for ~36% share appreciation on the one-year horizon. Based on the current dividend yield and the expected price appreciation, the stock has ~45% potential total return profile. (See ET stock forecast)

MPLX LP (MPLX)

Next up is MPLX, another of the major North American midstream energy companies. MPLX has a wide-ranging network of assets for the transport and storage of crude oil, natural gas, and natural gas liquids. The company’s pipeline web connects with a series of terminal points, and MPLX also operates an inland marine fleet of riverine tugs and barges. Apart from transport services, MPLX’s assets include oil and gas refineries, tank farms, storage facilities, and coastal export terminals. The company is also involved in the distribution of refined fuels.

MPLX boats a market cap of almost $35 billion, and its operations map stretches across the continental US. The company got its start more than a decade ago, when it was spun off of Marathan Petroleum as the operator for the parent company’s midstream assets. Since then, MPLX has expanded its niche in the North American midstream transport niche.

The company’s financial results showed a mix of positive and negative in the last reported quarter, 2Q23. MPLX saw top line declines, with revenue coming in at $2.69 billion. This was down 8.5% year-over-year, and was ~$18 million below the estimates. MPLX’s bottom line, however, showed a better trend. The company’s 91-cent GAAP EPS was 4 cents ahead of expectations, and was up 8 cents per share y/y.

MPLX reported a Q2 distributable cash flow of $1.315 billion. This supported a dividend payment of 77.5 cents per common share, or $3.10 annualized. The dividend, which was paid out on August 14, yields 8.9%.

This partnership company caught the eye of Stifel analyst Selman Akyol, who specifically points out MPLX’s cash generation and solid dividend as support for an upbeat rating. Akyol writes, “MPLX continues to build out its Permian footprint with a new processing plant and is expanding its JV NGL pipeline. Both projects should begin contributing incremental EBITDA in 2025. We continue to favor MPLX given its FCF generation, low leverage and return of capital to unitholder strategy. We expect buybacks to play a smaller role in 2H23, and expect MPLX to increase its distribution in 3Q23.”

Looking ahead, the analyst gives MPLX shares a Buy rating with a $42 price target that points toward a one-year upside potential of ~20%. (To watch Akyol’s track record, click here)

Overall, MPLX features a unanimous Strong Buy analyst consensus rating based on 6 positive reviews. The stock’s average price target is $42, matching Akyol’s view, and indicates room for ~20% upside from the current trading price of $34.89. (See MPLX stock forecast)

To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a 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.