Seeking at Least 8% Dividend Yield? Analysts Suggest 2 Stocks to Buy

Since hitting bottom last October, the S&P 500 has bounced back strongly – in fact, it’s up approximately 25% from that trough. A rally of that magnitude meets the definition of a bull market, and some economists are saying we’re experiencing just that.

A word of caution, however, comes from investment firm Wells Fargo. In a recent warning to investors, investment strategy analyst Austin Pickle notes that a recession is likely in the near future, and says, “With stock valuations full, we believe prices are unlikely to sustain recent highs as the economy rolls over.”

Pickle goes on to list three factors that are likely to push markets down in 2H23 or 1H24. First, the analyst notes that the Fed is still locked into raising interest rates. Even though the rate of inflation is falling, the Fed is almost certain to implement another 0.25% bump this month, putting rates at their highest level since 2007. Second, the economy hasn’t yet fallen into a recession. Historically, stocks tend to bottom after a recession hits – and after the Fed starts cutting rates in response. And finally, the current rally isn’t healthy. It’s been driven mainly by a small group of megacap tech stocks, a base too narrow to support a large rally.

It’s a mindset that naturally turns us toward dividend stocks. These are the traditional defensive investment plays, offering steady payouts to shareholders that guarantee an income stream whether markets go up or down.

Against this backdrop, some Wall Street analysts have given the thumbs-up to two dividend stocks yielding no less than 8%. Opening up the TipRanks database, we examined the details behind these two to find out what else makes them compelling buys.

OneMain Holdings (OMF)

We’ll start in the financial services sector with OneMain. This online banking and finance firm focuses on consumer services in the subprime banking and loan market. OneMain offers a wide range of financial services, especially personal loans and insurance products, to a consumer customer base that sometimes lacks access to the traditional banking system. OneMain uses a careful vetting system to screen its customers and boasts that its screening process has kept defaults at an acceptable rate. In addition to its online presence, OneMain also reaches out to customers through a network of physical locations, with approximately 1,400 branches across 44 states.

On the financial side, OneMain reported its 1Q23 results at the end of April, showing some mixed results. The top line revenue came to $1.03 billion; this was in-line with expectations, flat year-over-year, and just missed the forecast, coming in $2.6 million below expectations. The company’s bottom line earnings showed a split. The non-GAAP measure came in at $1.46 per share, missing by 19 cents, while the GAAP EPS of $1.48 was 5 cents better than the estimates.

OneMain had $18.5 billion in outstanding debt balances at the end of Q1, along with $544 million in cash and liquid assets. Of that cash total, $177 million was not available for general corporate uses. The company has $385 million set aside as provision for finance receivable losses. While this sum is lower than equivalent provisions in the last three quarters, it is significantly higher than the $238 million set aside for this purpose at the end of 1Q22.

Turning to the dividend, we find that OneMain declared its last payment on April 25 of this year, for $1 per share. The dividend annualizes to $4, and gives a strong yield of 8.6%.

This consumer credit company has caught the attention of JMP’s 5-star analyst David Scharf, who sees the overall risk/reward here as favorable. Scharf notes that OneMain is outperforming its competition on customer applications, and maintaining discipline on expenses.

“We continue to be encouraged by the improving credit profile that has emerged since the mid-2022 tightening; the increased application volumes and share gains resulting from weakened competition; the maintenance of expense discipline; elevated capital generation; and the improving funding profile. We continue to believe that the company’s 2023 guidance is somewhat conservative, both in terms of loan loss reserves and portfolio growth, and we already saw the target for receivables growth raised to the high end of the range after just one quarter,” Scharf opined.

“When the positive attributes noted above are combined with a discounted current year P/E below 6x and a dividend yield above 10%, we see a very compelling risk/reward trade-off for shares of OMF,” the analyst summed up.

Looking ahead, Scharf gives OneMain stock an Outperform (i.e. Buy) rating, and his $55 price target implies a one-year upside potential of 18%. Based on the current dividend yield and the expected price appreciation, the stock has ~27% potential total return profile. (To watch Scharf’s track record, click here)

Overall, OneMain gets a Strong Buy rating from the Street, based on 12 recent analyst reviews that include 9 Buys and 3 Holds. (See OMF stock forecast)

Global Medical REIT (GMRE)

The next stock on our list is a real estate investment trust, a REIT. These are perennial dividend champs, and Global Medical puts an interesting twist on the REIT model: the company focuses on medical facilities and properties. The company boasts a heavy footprint, including 188 owned buildings, with 4.9 million leasable square feet, and 274 tenants. Global Medical’s real estate assets are valued at approximately $1.5 billion, and the company collects an annualized base rent of $114.9 million.

The firm has seen its revenues increase over the past several quarters, while earnings per share are sliding down. This can be seen in the company’s last quarterly financial release, from 1Q23. GMRE reported a top line of $36.2 million, up more than 13% from the year-ago quarter but sliding in just under the forecast by $340,000. The company’s bottom line, a net income of $700,000 attributable to common shareholders, gave an EPS of 1 cent per share. This was in-line the forecast, but was down sharply from the 4-cent EPS reported in 1Q22.

Dividend-minded investors should watch the company’s funds from operations, or FFO, as this metric reflects available cash. Global Medical reported an FFO of $15.1 million, or 22 cents per share for Q1, and an adjusted FFO, or AFFO, of $16 million, translating to 23 cents per share. The company had $4.6 million in cash and cash equivalents on hand as of March 31 this year, compared to $4.02 million at the end of 2022.

On June 9, the company declared its common stock dividend payment for 21 cents per share, and paid it out on July 11. The dividend annualizes to 84 cents, and yields a robust 8.6%. The company has been paying out the 21-cent dividend for the last 6 quarters, and has been paying out a slowly increasing dividend since 2016.

Covering this stock for Stifel, 5-star analyst Stephen Manaker sees plenty of potential for investors to grab onto. He writes, “We rate GMRE Buy, believing the stock represents an attractive value, despite limited near-term growth and above-average leverage. We still view the REIT as a long-term growth story, buying assets in secondary markets, markets that larger institutional investors typically avoid. While the tenants might not have an investment grade rating, GMRE’s focus on the profitability of a tenant in a specific location (among other underwriting criteria) has proven to be successful.

“The REIT should be able to sell some of these assets with proven tenants, allowing for the recycling of capital into higher yielding investments. This could help the REIT grow earnings without necessarily increasing the size of the balance sheet or accessing expensive capital,” the analyst added.

Alongside his Buy rating, Manaker gives GMRE shares a price target of $11, implying a 13% upside in the next 12 months. (To watch Manaker’s track record, click here)

Overall, GMRE gets a Moderate Buy rating from the analyst consensus, based on 7 recent reviews. These break down to 4 Buys and 3 Holds. (See GMRE 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.