Seeking Up to 12% Dividend Yield? Analysts Recommend 2 Dividend Stocks to Buy

The stock markets have seen a strong bull run in the past two years, but this year may test investor confidence amid shifting interest rate expectations and lofty earnings forecasts.

To start with, the Bureau of Labor Statistics stated that the U.S. economy added 256,000 new positions in December, far more than the 150,000 that had been expected. The solid jobs numbers have pushed back expectations for additional interest rate cuts into the second half of this year.

On top of that, the Q4 earnings reports are coming up, and the pre-season forecast – of an overall earnings increase of 7.3% among S&P-listed firms – is the second-highest such forecast of the past three years. Market watchers are wondering if stocks may have outpaced their valuations, but more importantly, the high bar increases the chances that the Q4 earnings will prove disappointing.

While the market’s underlying strength remains evident, the situation still calls for a defensive stance, which will draw investor attention to high-yield dividend stocks. These equities provide a steady income stream regardless of market fluctuations, and when their yields are high enough, they can significantly enhance a portfolio’s overall return.

Against this backdrop, Wall Street analysts are zeroing in on two dividend stocks, with yields reaching as high as 12%. Using the TipRanks database, we’ve delved into what makes these picks particularly appealing.

Chicago Atlantic Real Estate Finance (REFI)

We’ll start with a real estate investment trust, a REIT, which is a logical place to start looking at high-yield dividend stocks. These companies raise capital, invest it in real properties or mortgage and real estate-related securities, and are well-known for paying out high and reliable dividends. Chicago Atlantic Real Estate operates in this segment but with a twist – it operates in the cannabis sector as the ‘lender of choice’ to the nation’s leading cannabis operations.

That’s a tough row to hoe, however, as cannabis remains illegal at the federal level and state laws and regulations are a mishmash of various regimes. There are only four states (Idaho, Wyoming, Kansas, South Carolina) where cannabis remains fully illegal, but in the rest, policies range from fully legal (24 states) to simply decriminalized, or to legal for medical use, or to combinations of these. Chicago Atlantic has entered the cannabis landscape as a provider of necessary capital while navigating the difficult rules and regulations of the sector.

As of the end of 3Q24, the last quarter reported, the company’s portfolio included loans to 29 firms, with a total outstanding principal of $362.3 million. This number includes $32.7 million in gross originations during the quarter, with $24 million of that going to new borrowers and $8.7 million going to existing borrowers. Between the end of Q3 and the November 7 quarterly earnings release, Chicago Atlantic added another $36.5 million in gross originations.

Overall, Chicago Atlantic earned $14.45 million in net interest income during 3Q24, a figure that was up 5.2% year-over-year and beat the forecast by a modest $260K. The company’s distributable earnings per share – a key metric for a dividend stock, as it supports the dividend payments – came to 56 cents, a nickel better than had been expected.

On the dividend, Chicago Atlantic most recently declared its dividend on December 20, at 47 cents per common share for a January 13 payout. This gives a $1.88 annualized payment, and a forward yield of 12.4%. The company also added an 18-cent special dividend to its declaration, marking the third quarter in a row that Chicago Atlantic has added a special dividend payment to its December declaration.

This stock has caught the attention of analyst Aaron Grey, who covers the shares for Alliance Global Partners. Grey is impressed by the company’s ability to manage risk in a difficult sector, along with the high dividend yield. He writes of this REIT, “We believe REFI is well positioned as a mortgage REIT to provide loans to the capital-constrained cannabis sector. The combination of REFI having derisked the exposure to lower rates (37% now fixed rate loans & increase avg floating floor), healthy liquidity (>$75M) and ample opportunities ($560M pipeline) should help the company grow its loan portfolio, income & distributable earnings. With REFI offering an attractive 12% dividend yield and healthy coverage (1.2x), we see this as an attractive entry point given the company’s ability to succeed in the cannabis market both in the current & future environments.”

These comments add up to a Buy rating from Grey, who complements that with a $20 price target indicating his confidence in a 32% gain on the one-year horizon. With the upside and dividend yield taken together, the one-year return on this stock may exceed 44%. (To watch Grey’s track record, click here)

Shares in Chicago Atlantic have picked up 3 recent analyst reviews, all positive, to support a unanimous Strong Buy consensus rating. The stock is selling for $15.18 and its $20.67 average price target implies a one-year upside potential of 36%. (See REFI stock forecast)

Plains All American Pipeline (PAA)

While REITs are well-known as dividend champs, they are not the only place to find high-yield dividend stocks. The energy sector, a vital segment of the economy in all conditions, is also known for providing strong dividends, and Plains All American is typical in this respect.

The company is a midstream operator, working in the North American oil and natural gas sector. Plains All American owns and operates a network of assets for the transport and storage of crude oil, natural gas, natural gas liquids, and refined petroleum products. The company’s asset network stretches from Texas to Alberta – across the Great Plains of North America, hence the firm’s name – and includes approximately 19,900 miles worth of pipelines and 157 million barrels worth of storage capacity. These are supplemented by some 2,300 trucks and trailers for road transport, and more than 5,500 railcars for carrying crude oil and natural gas liquids.

Plains All American is a huge company, with a major footprint in the oil and gas industry. A few numbers will illustrate the fact. The company has a market cap of $13.3 billion, and in its 3Q24 report, the last released, PAA reported that it handled a total crude oil pipeline tariff volume of 9,166 thousand barrels per day, up 11% year-over-year.

PAA’s business generated $12.74 billion worth of revenues in 3Q24. This was up 5.6% from the prior-year period, although it missed the forecast by $340 million. At the bottom line, PAA realized a non-GAAP EPS of 37 cents, up 6% year-over-year and beating the estimates by 6 cents.

Earlier this month, the company announced its dividend distributions for 4Q24. The company declared a 38-cent common share quarterly payment, representing a 20% boost from the prior quarterly dividend. At 38 cents, the common share dividend annualizes to $1.52 per share and gives a forward yield of 8%. The dividend is scheduled for payment on February 14.

Covering this stock for Wolfe Research, analyst Keith Stanley explains why PAA shares are undervalued and carry plenty of potential going forward. He writes, “Plains materially underperformed its midstream peers in 2024 as investors favored gas focused infrastructure, C-corps, and growth. Meanwhile, the company has shown strong financial results and the valuation discount has widened. We think the stock now offers a counter consensus, deep value opportunity with optionality to create value. While the company doesn’t have a lot of organic growth, we view the balance sheet as an underappreciated asset to drive cash flow growth through incremental tuck-in acquisitions or refinancing its expensive preferred stock. The company also generates strong organic cash flow with a very high and still rapidly increasing dividend yield alongside a good balance sheet. Lastly, we see PAA as an eventual takeout target.”

Stanley goes on to put an Outperform (i.e. Buy) rating on the shares, along with a $22 price target that suggests an upside of 16% on the one-year horizon. (To watch Stanley’s track record, click here)

There are 12 recent analyst reviews for PAA shares, and the breakdown of 6 to Buy, 4 to Hold, and 2 to Sell gives the stock its Moderate Buy consensus rating. The shares are currently priced at $19.01 and their average target price of $20.27 implies the stock will gain 6.5% in the next 12 months. (See PAA 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.