After two years of bullish markets, the past two months have brought increased volatility. We saw sharp drops when President Trump announced his tariff policy against Canada, Mexico, and China, our largest trading partners, and the prospect of a series of trade wars brings with it renewed worries that inflation could start running up again. The combination of the two has raised fears of an economic correction.
In this type of environment, it’s only natural for investors to start protecting their portfolios – and a go-to place for such protection is the realm of high-yield dividend stocks. While usually used as defensive plays, especially against high market volatility and uncertainty, the best dividend stocks bring with them a clear set of advantages. These include a steady income stream, inflation-beating yields, and steady returns when markets turn south.
Some of Wall Street’s top analysts like dividend stocks, and they’ve been pointing out high-yield dividend payers as likely buys for the coming months. In particular, they’ve recommended stocks with dividend yields as high as ~12% and long histories of reliable payments. We’ve used the TipRanks database to look up the details on two of these recent analyst choices; here they are, along with the analyst comments.
TPG RE Finance Trust (TRTX)
We’ll start in the world of real estate investment trusts, or REITs, a common place to find leading dividend stocks. TPG RE Finance controls a portfolio of commercial real estate, worth $3.4 billion at the end of 2024. Just over half of the company’s portfolio, 52%, is made up of multifamily dwellings; office space makes up 17.8%, life sciences facilities make up 10.8%, and hotels make up 10.2%. The remainder of TPG RE’s real estate assets are in industrial, self-storage, and mixed-use properties. Geographically, the company’s largest footprint, 36.8% of the whole, is in the West, mainly California. Another 31.7% of the properties are in the East.
As its name suggests, TPG RE Finance operates under the umbrella of the larger TPG global alternative asset firm. TPG has $246 billion in total assets under management so TPG RE’s operations are supported by access to the larger parent firm.
Earlier this month, TPG RE Finance made its most recent dividend declaration, for 24 cents per common share. The dividend is scheduled for payment on April 25. The dividend annualizes to 96 cents per share, and gives a forward yield of 11.96%. We should note here that this company’s regular quarterly dividend has been maintained at the current rate since 2022, and that the company has a history of regular quarterly dividend payments going back to 2017.
Turning to the financials, TPG RE Finance finished 4Q24 with a GAAP net income attributable to common shareholders of $6.9 million, which came to 9 cents per common share. This figure missed expectations by 11 cents per share. During the fourth quarter, the company received $110 million in loan repayments and originated $242 million in new loan investments. The company finished 2024 with cash and cash equivalents totaling $321 million. Distributable earnings before realized losses came to 22 cents per common share for Q4.
This stock comes under the coverage of Stephen Laws, from Raymond James. The analyst, who is rated in the top 3% of Wall Street stock experts by TipRanks, explains why this stock should pay off for investors, and says of TRTX, “We expect distributable earnings to increase moving forward as TRTX grows the investment portfolio and resolves REOs with capital being accretively redeployed into new CRE senior loan investments. Our rating reflects the compelling risk-reward given the attractive portfolio characteristics (100% performing loan portfolio, declining office exposure, and high mix of non-MTM financing), expectation for increasing new investment activity, and attractive valuation as shares trade at ~75% of book value.”
Laws puts an Outperform (Buy) rating on these shares, and his price target of $10 implies a one-year upside potential of 24.5%. Add in the dividend yield, and the total one-year return here could reach more than 36%. (To watch Laws’ track record, click here)
Overall, TRTX shares get a Moderate Buy consensus rating from the Street, based on 6 recent reviews that include 5 to Buy and 1 to Sell. The stock is trading for $8.02 and its $9.75 average target price suggests a gain of 21.5% in the year ahead. (See TRTX stock forecast)
Ares Capital Corporation (ARCC)
Ares Capital Corporation, the second stock on our list of high-yielding dividend payers, is a business development company, or BDC. These firms play an important role in the US business sector, acting as direct lenders to small- and mid-sized businesses that don’t always have access to ready capital from the large commercial banks. BDCs like Ares Capital Corporation fill that gap, and make available the capital that fuels American small businesses. We should note that in February of this year, the company brought in a new CEO, Kort Schnabel, who will take on the position as of April 30.
This company was founded in 2004, and in the years since it has assembled a solid portfolio of investments. The company’s portfolio currently has a fair value in the neighborhood of $226.8 billion, and is made up of investments in 550 companies with backing from 241 private equity sponsors. Dipping into Ares’ portfolio, we find that it is diverse in both composition and industry. Of the total, 56.9% is first lien senior secured loans, 9.9% is in preferred equity securities, and 6.9% is in second lien senior secured loans; the remainder is made up of various types of debt and securities. Software & services companies make up 24.4% of Ares’ investments, with Health Care Equipment and Services, at 12%, making up the second-largest part of the portfolio. Ares Capital Corporation also has investments in Commercial & Professional Services, Insurance, Consumer Distribution and Retail, and in Consumer Services.
The company saw a total investment income in 4Q24, the last quarter reported, of $759 million. This was up 7.4% year-over-year, but it missed the forecast by $28.5 million. At the bottom line, Ares Capital Corp realized a non-GAAP EPS of 55 cents, missing the estimates by 3 cents per share.
Despite missing the earnings estimates, the company’s bottom line was still sufficient to fully cover the dividend. That payment, last declared for a March 31 distribution, was set at 48 cents per common share. At this rate, the dividend annualizes to $1.92 per share and gives a forward yield of 8.66%. ARCC has consistently paid regular dividends for over 15 consecutive years, either maintaining or increasing them.
For Truist’s Mark Hughes, an analyst ranked in 2nd spot amongst the Street’s stock experts, some key points to note are this company’s change of management, its ability to deliver a sound yield, and its reliable dividend. Hughes says of Ares Capital Corporation, “The newly appointed CEO stated they continue to see the total return opportunity in today’s market as highly attractive with significant equity cushions supporting debt investments and a healthy total yield premium to the liquid loan market… We believe ARCC’s sustained NAV and dividend growth in an uncertain market, strong franchise value, high-quality portfolio, and growth potential (focusing on the upper-end of the middle market) warrants a multiple premium to its larger peers.”
The 5-star analyst goes on to rate these shares as a Buy, and his $25 price target points toward a 12-month gain of 13%. Taken with the dividend yield, ARCC’s total return may come to more than 21%. (To watch Hughes’ track record, click here)
There are 8 recent analyst reviews on ARCC shares, and the 7 to 1 split, favoring Buy over Hold, gives them a Strong Buy consensus rating. The stock is selling for $22.11 right now, and has a $23.44 average price target that suggests a modest 6% gain on the one-year horizon. (See ARCC stock forecast)
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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.