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2 “Strong Buy” Dividend Stocks Yielding at Least 8%

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2022 is here and according to the analysts we’re in for a bumpy ride – at least initially. In a recent Bankrate survey, 70% of the top experts polled indicated they believe an S&P 500 correction is in the cards sometime over the next 6 months, with a 10%+ drop anticipated.

While various reasons behind the expected pullback were noted, recurring themes included rising interest rates and stocks’ overheated valuations. The decline will bring the bull market’s almost continuous run since the pandemic-driven March 2020 lows to a halt. On the other hand, the good news is that all participants said they believed that by the end of 2022, the S&P will be back to winning ways, with the index expected to see out the year boasting 8% growth – just under the historical average.

Nevertheless, this sort of near-term warning signals it is time for some defensive plays, and this will naturally bring us to dividend stocks. These are the stocks which will ensure a steady income no matter the day-to-day market swings and protect the portfolio against any incoming volatility.

With this in mind, we delved into the TipRanks database and homed in on two names that fit a particular profile; a Strong Buy rating from Wall Street’s analysts and a market beating dividend yield of at least 8%. Let’s take a closer look.

Ready Capital Corporation (RC)

First up we have Ready Capital, a real estate investment trust (REIT). REITs exist to acquire, own, lease, and manage various real properties, including residential, commercial, and industrial assets. The companies derive their income from leasing and sales activity, and are required by tax regulations to return a specific, high percentage of profits directly to investors. Dividends are a common mode for compliance.

Ready Capital lives in the commercial real estate segment, where it focuses more on commercial real estate loans than physical properties. Ready will acquire such loans, but will also originate, finance, and service small- to medium-balance commercial real estate loans. The larger part of Ready’s business is financing such loans for small businesses and multi-family residences.

Throughout 2021, the company saw steady increases at both the top-and bottom-lines. In the latest quarterly report, for Q3, the company reported revenue of $187 million, the best print in the past two years. EPS came in at 64 cents, the highest since 2Q20 and up 15% from Q2.

For dividend investors, the EPS number is a key metric, as it was more than high enough to cover the 42 cent common stock dividend. The dividend has been held at this level for the past three quarters, after volatility during the pandemic crisis. With an annualized payment of $1.66, the dividend yields an impressive 10.7%.

Analyst Matt Howlett, covering Ready Capital for B. Riley, sees it in a strong position for continued gains next year.

“We expect the company to increase its quarterly dividend to $0.45/share by mid-2022. While a resurgence of COVID remains a potential overhang on the CRE market, we point out that RC’s portfolio performed remarkably well ($0 losses) during the first wave of the pandemic. In addition, the model has offset such as its residential origination business and SBA platform (including PPP) that would likely outperform in a repeat scenario of 2020 and is a differentiator relative to peers. On the flip side, RC is well-positioned for rising interest rates with 70% of its loans floating rate combined with 70% of its remaining fixed-rate product match funded,” Howlett opined.

Howlett’s comments support his Buy rating on the shares, while his $18 price target implies an upside potential of 15% for the coming year. Based on the current dividend yield and the expected price appreciation, the stock has ~26% potential total return profile. (To watch Howlett’s track record, click here)

Overall, the Strong Buy consensus rating here is unanimous, and based on 5 positive reviews set in recent weeks. RC shares are trading at $15.63 and their average price target of $17.80 suggests ~14% upside by the end of 2022. (See RC stock analysis on TipRanks)

Kimbell Royalty Partners (KRP)

The second stock we’re looking at, Kimbell Royalty, has a foot in both the real estate and energy sectors. Kimbell buys and owns mineral extractions rights on lands in high-production hydrocarbon regions across the US, and collects royalty payments on the oil and gas products from those lands. The company’s holdings include more than 13 million acres in 28 states, in such major areas as the Permian Basin in Texas, the Bakken fields in Montana, and the Appalachian gas regions of Pennsylvania.

Getting into details, Kimbell’s land holdings are host to more than 121,000 active wells. Of that total, more than 46,000 are in Texan Permian formations. Even though oil and gas drilling has slowed under the Biden Administration, higher prices are compensating to a degree, and Kimbell has shown rising revenues this year. In Q3, the top line hit $49.3 million, and included record revenue from oil and gas production. This was up 23% from the previous quarter. At the bottom line, net income hit $7.5 million, for a 101% sequential gain.

As we turn to the dividend, we’ll take a quick stop at ‘cash available for distribution,’ the key metric that supports the dividend payment. Kimbell posted a record here, too, with 50 cents per share available. This easily supported the 37 cent common share dividend, which was up 19% from the Q2 payment. The dividend payment yields 8.4%, far higher than the average dividend among S&P-listed companies, and much higher than current Treasury bond yields. With all of this in mind, it’s no surprise that KRP shares have gained an impressive 90% in 2021.

While Wells Fargo analyst Joseph McKay is taking a cautious stance on the mineral sector, he is bullish on Kimbell. McKay writes of the company’s current position: “We think this is a good entry point for a company that will be paying off its preferred equity balances in January 2022 which will add ~$2 mm of cash flow on an annual basis and allow the company to turn the corner to debt reduction. Further, distributions from KRP are expected to be treated as a reduction of capital for tax purposes beyond 2022, an advantage vs. peers particularly as commodity prices continue to rise and tax shield timelines become shorter.”

In Iine with these comments, the analyst puts an Overweight (i.e. Buy) rating on KRP shares, along with an $18 price target. If the target is achieved, the stock could provide ~32% returns over the next 12 months. (To watch McKay’s track record, click here)

Other analysts are even more optimistic. Of the five investment banks that have rated KRP over the past three month, all five agree the stock is a “buy” — and on average, they think it’s worth $20.40 a share — 50% ahead of current pricing. (See Kimbell stock analysis on TipRanks)

To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched 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.

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