Seeking at Least 7% Dividend Yield? Analysts Suggest 2 Dividend Stocks to Buy

Inflation made the headlines through most of last year, for all the worst reasons: it ran far too high, peaked above 9% in June, and the inflationary pressures pushed down hard on stock markets. The Fed jacked interest rates up their highest level in over a decade, risking recession to fight the rise in prices.

Today, inflation is still in the headlines, although the tone has shifted. The annualized rate is trending downward; the December number came in at 6.5% year-over-year. While this is good news, some doubts remain.

“To the upside, inflation of sticky prices like violin lessons, veterinarian fees, car repairs, and other services provided by small businesses and sole proprietors was still accelerating in late 2022—and that stickiness could make inflation rebound later this year or in 2024 as growth gets back on track,” said Comerica Bank chief economist Bill Adams in a recent note.

A possible rebound in the pace of inflation immediately suggests defensive portfolio moves for retail investors, especially into dividend stocks. These income-generating equities offer some degree of protection against both inflation and share depreciation by providing a steady income stream.

Against this backdrop, some Wall Street analysts have given the thumbs-up to two dividend stocks yielding of 7%, or even better. Opening up the TipRanks database, we examined the details behind these two to find out what else makes them compelling buys.

Enterprise Products Partners (EPD)

We’ll start with a midstream energy company, Enterprise Products Partners. Enterprise’s network of transport and storage assets connects the wellheads with the customers in the hydrocarbon sector; the company’s primary work is moving crude oil, refined products, natural gas, and natural gas liquids to where they’re needed. Enterprise has a network of assets, including pipelines, rail and road tankers, and barges, as well as refineries, processing plants, terminal points, and tank farms. These networks are centered on the Texas and Louisiana coasts, but extent up the Mississippi Valley and into the Rocky Mountains, into the Southeast, and into Appalachia and the Great Lakes regions.

The hydrocarbon sector has gotten a boost from rising prices over the past 18 months, supported by the fact that our modern world simply cannot do without fuel – and so consumers cannot make significant cuts in usage. As a result, while the S&P 500 has shown a 11% decline in the last 12 months, EPD shares are up by approximately 14% in that same period. This gain has come alongside a similar trend of rising revenues and earnings.

The company will report quarterly results on February 1, for Q4 and full-year 2022; but we can look back at Q3 to get a idea of the picture. The third quarter top line was $15.5 billion, up from $10.8 billion in the prior year quarter. Of particular interest to dividend investors, the net income attributable to shareholders came to $1.4 billion, up from $1.2 billion one year earlier. In EPS terms, this was 62 cents per diluted share, a gain of 19% y/y.

The company declared its next dividend payment, for 4Q22, on January 5, at 49 cents per common share. This payment will go out on February 14. The annualized payment, of $1.96, gives a yield of 7.7%, more than 3x the average dividend yield found on the broader markets – and more importantly, beating current inflation by more than a full point. Enterprise is committed to keeping the dividend reliable, and has a 24 year history of regular dividend increases.

This company has caught the eye of analyst Linda Ezergailis from TD Securities, who writes, “We believe EPD’s units offer a combination of value and distribution growth at a moderate risk profile, given the company’s well-positioned integrated system of assets, connectivity, scale, incumbency, and expertise. Our thesis incorporates expectations of some valuation expansion as investors recognize the long-term growth possibilities that EPD has associated with its hydrocarbon-related exports to growing markets, transition to a lower-carbon energy future, and value-chain extension to midstream petrochemicals opportunities.”

Looking forward from her position, Ezergailis rates EPD shares a Buy, and her price target of $31 implies a one-year upside potential of 21%. Based on the current dividend yield and the expected price appreciation, the stock has ~29% potential total return profile. (To watch Ezergailis’ track record, click here)

Some stocks earn their love from Wall Street – and EPD, with 11 positive reviews supporting a unanimous Strong Buy consensus rating, has clearly done so. The shares are trading for $25.59, and their average price target of $31.18 indicates room for 17.5% appreciation over the next 12 months. (See EPD stock forecast)

Coterra Energy, Inc. (CTRA)

The second stock on our list, Coterra Energy, exists in the exploration and production realm of the hydrocarbon industry – specifically, in the North American oil and gas fields. Coterra’s network of operations is in some of North America’s most productive and profitable formations, such as Pennsylvania’s Marcellus shale, Texas’ Permian basin, and Oklahoma’s Anadarko basin. Overall, Coterra has a 600,000 acre footprint, and well over 2,891 million barrels of oil equivalent in proven reserves.

Coterra’s solid position in the exploration and production world is reflected in the company’s steadily rising revenues and earnings. Coterra will report its 4Q22 and full-year 2022 results on February 23, but for now we can look at the published 3Q22 results for a picture of how the company is doing.

That picture is one of revenue gains. Revenues came to $2.52 billion, compared to just $440 million one year prior. These revenues brought in net income of $1.196 billion, up from $64 million in 3Q21. Earnings per share rose from 16 cents to $1.51 y/y. Cash from operations reached $1.77 billion in the quarter, with free cash flow of $1.06 billion. These sound results rested on high production numbers, which exceeded the previously published guidance. Oil production in 3Q22 came in at 87.9 MBopd, above the guidance mid-point, and natural gas production for the quarter averaged 2.807 billion cubic feed daily, beating the guidance high-end.

On the dividend front, Coterra has announced plans to return up to 74% of Q3 free cash flow to shareholders, with two-thirds of that return made through dividend payments. The current dividend, of the 15-cent base plus the 53-cent variable, equals 68 cents per common share; this dividend gives a powerful yield of 11%, far above both the average yields among peer companies – and the rate of inflation.

Stifel analyst Derrick Whitfield has been covering Coterra, and he is upbeat about the company’s proven reliability – and future plans – in returning capital to shareholders.

“Coterra has committed to a +50% return to shareholders, excluding share buybacks. Over the past two quarters, the company has returned 81% and 74% of FCF through cash dividends and share repurchases. During a recent meeting with the company, the CEO noted that he wants to distinguish the company in 2023, which we believe could be in the form of a healthy increase in the base dividend and increased share buybacks,” Whitfield noted.

These comments, and the implication for the stock’s value to dividend investors, back up Whitfield’s Buy rating on CTRA, and his price target, now at $38, suggests a gain of 54% on the one-year horizon. (To watch Whitfield’s track record, click here)

Looking at the consensus breakdown, 6 Buys, 10 Holds, and a single Sell have been published in the last three months. Therefore, CTRA gets a Moderate Buy consensus rating. Based on the $31.67 average price target, shares could surge ~28% in the next year. (See CTRA stock forecast)

To find good ideas for 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.