On the economic front, there’s a growing sense of uncertainty, with various factors looming on the horizon. These factors include persistent inflation, the Federal Reserve’s decision to raise interest rates and tighten monetary policy, a more stringent lending environment for businesses and consumers, and rapidly escalating government debt, which already amounts to $33.57 trillion, equivalent to 103% of the total GDP. While we’ve been aware of these headwinds for several years, the real question is when, or if, they will converge into a significant crisis.
Jamie Dimon, the CEO of JPMorgan, has expressed his concerns, saying, “This may be the most perilous time the world has faced in decades. While we hope for the best, we prepare the firm for a range of outcomes to consistently deliver for clients regardless of the circumstances.”
Given this backdrop, investors are increasingly inclined to adopt a defensive stance when it comes to their portfolio. This often leads them towards high-yield dividend stocks, which can provide a stable income stream and some protection against the impact of inflation and share depreciation.
Against this uncertain backdrop, certain well-regarded analysts have identified two dividend stocks with yields as high as 11%. To uncover what makes these stocks compelling investment options, we delved into the details using the TipRanks database.
Blackstone Secured Lending (BXSL)
Our first pick is Blackstone Secured Lending, a business development company (BDC) operating under the umbrella of Blackstone Asset Management. BXSL operates in the financial services sector, offering capital and credit services to private companies across various sectors in the US market, including veterinary care, the insurance industry, and cable communications distributors. The largest sectors represented in BXSL’s portfolio are software and healthcare.
In terms of numbers, BXSL’s portfolio consists of $9.3 billion in investments, mainly composed of first lien senior secured loans, accounting for 98.4% of the total. Furthermore, 98.7% of their portfolio is in floating rate instruments. As of the end of the second quarter in 2023, BXSL had investments in 180 companies.
In the last reported quarter, BXSL generated a total investment income of approximately $290 million, a 55% increase compared to the previous year and surpassing estimates by $14.5 million. On the bottom line, BXSL reported a net investment income of $1.06 per share, exceeding estimates by 3 cents per share. Notably, the net investment income covered the common share dividend payment for the 17th consecutive quarter.
BXSL recently raised its common share regular dividend by 10% to 77 cents, set to be paid on October 26. At an annualized rate of $3.08, this dividend yields an impressive 11.5%, surpassing the average dividend yield of S&P-listed companies by over 5 times.
Truist analyst Mark Hughes, impressed by BXSL’s high-quality portfolio and its ability to maintain its dividend, states, “The high quality of Blackstone Secured Lending’s portfolio is underscored by its low proportion of PIK income and high dividend coverage. This positions the company to both grow net asset value (NAV) on a consistent basis and to maintain a stable and attractive dividend yield; historically this has been the formula for BDCs to trade at a premium to NAV… Blackstone Secured Lending shares are compelling on a price-to-NAV basis, we believe, particularly when evaluated in the context of the company’s return on equity and the quality of its investment portfolio…”
Looking ahead, Hughes rates BXSL shares as a Buy, with a price target of $29, indicating an 8.3% gain in the coming year. When factoring in the dividend yield, the total return could approach around 20%.
In total, of the nine recent analyst reviews for this stock, six recommend buying, and three suggest holding, leading to a Moderate Buy consensus rating.
Equitrans Midstream (ETRN)
The next dividend stock on our list is Equitrans, a midstream company operating in the oil and gas sector. Midstream companies play a crucial role in the energy supply chain by transporting hydrocarbon products from production areas and wellheads to refineries, terminal points, and storage facilities for eventual distribution to end users. Equitrans focuses its operations in the Appalachian region, specifically in the convergence area of Pennsylvania, Ohio, and West Virginia. This region is known for its abundant natural gas production and forms the core of Equitrans’ extensive midstream network.
Equitrans primarily transports natural gas and natural gas products out of the Appalachian Basin, and the company’s network holds a strategic position capable of relieving bottlenecks in the Basin. Notably, Equitrans’ Mountain Valley Pipeline (MVP) and MVP Southgate projects promise to enhance the crucial link between natural gas sources and major US demand markets.
Despite a modest decrease in total revenue to $318.5 million, down 3% from the prior-year quarter, and a slight miss of nearly $7.9 million on revenue forecasts in the last financial report (for Q2), the company’s bottom line remained solid, with non-GAAP earnings of 9 cents per share, surpassing estimates by 4 cents per share.
Equitrans has maintained a dividend since 2019, with the current payment remaining stable since 2020 at 15 cents per common share, equating to 60 cents annually, and offering a dividend yield of 6.3%.
Goldman Sachs analyst John Mackay, impressed by Equitrans’ expansive footprint, suggests that its assets are attractive to both investors and M&A firms. Mackay states, “Given ETRN’s strategic gathering and transmission footprint in the Appalachian Basin, relative EV size, and cash flow clarity from an MVP resolution, we see ETRN as a potential M&A target. ETRN’s assets are highly strategic in our view in the core of the SW Marcellus and Utica with interconnections into all major interstate pipelines in the region – and are supported by long term MVCs with IG counterparties… With an EV size of ~$[12]b, we believe the relative size appears manageable for larger midstream players.”
Taking these comments into account, the Buy rating from Goldman Sachs, along with a price target of $11.50, implies a nearly 21% gain in the next year. When you factor in the dividend yield, the total return could reach as high as 27%.
Overall, the analyst consensus on Equitrans is a unanimous Strong Buy.
