With markets on an upward trend now would seem an odd time to shift toward dividend stocks. But there are advantages to this traditional defensive play. Dividend stocks will provide some portfolio protection should markets fall again. While they tend to show less share appreciation than the average, they also show less depreciation in down times. And, a reliable dividend always pays out – in good times and bad.
So, let’s look at dividend stocks. The TipRanks Dividend Calendar makes it easy to locate the market’s dividend champs – those stocks with Strong Buy ratings from the analyst community, high upside potential, and reliable, high-yield dividends. That’s a trifecta of perfect signals, highlighting defensive plays that will offer multiple avenues for return on investment.
We’ve started the footwork for you. Here are three stocks showing all three of those positive signals – a Strong Buy consensus rating, an upside in the high teens or better, and dividend yields above 5%. Let’s look at the details, along with commentary from Wall Street’s analysts.
New Residential Investment (NRZ)
We start with a real estate investment trust (REIT), New York-based New Residential. This company holds a widely diversified portfolio, including original loans, residential mortgages, and mortgage servicing rights. The company’s investments are tied mainly to mortgage services, making its business model more complex than most of its peers. Mortgage servicing rights, totaling over $3 billion, make up 54% of the portfolio.
Like much of the market, New Residential saw significant pressures in 1H20, stemming from the COVID-19 pandemic and the economic dislocations caused by the containment measures. The company’s earnings slipped in the first and second quarters, and revenues remain under pressure. In addition, the stock’s share price slid in February/March, and has not yet regained pre-crisis levels. All of this has impacted the dividend, in some ways good and other ways bad.
First, the bad news. NRZ slashed its dividend in the first quarter, and the payment remains low. Q1 saw a payment of 5 cents per common share, down from the historical 50 cents. In Q2, the company increased the dividend payment to 10 cents, in response to improving cash flow.
Now the good news. NRZ reported over $1 billion in available cash in the second quarter, allowing management to raise the dividend. And with share prices low, the 10-cent dividend payment gives a yield of 5.18%. This compares favorably to the 2% average yield found among S&P-listed companies.
Covering New Residential for investment firm Raymond James, 5-star analyst Stephen Laws maintained his Buy rating and raised his price target to $10.50. His new target implies a robust upside of 33%. (To watch Laws’ track record, click here)
Backing his stance, Laws writes, “We expect strong origination volumes and attractive gain on sale margins to drive near-term results… Book value was $10.77 per share on June 30, up slightly from $10.71 per share on March 31... Given the strong mortgage banking outlook and improved portfolio financing, we believe a multiple in line with book value is appropriate.”
The Strong Buy analyst consensus rating on NRZ is based on 7 reviews, and it is unanimous – all of the recent reviews are Buys. Shares are selling for $7.88 and the average price target of $10.07 suggests it has a one-year upside potential of 28%. (See NRZ stock analysis on TipRanks)
National Retail Properties (NNN)
Next on our list, National Retail Properties, is another REIT, but with a twist. National invests in freestanding retail units, with a portfolio containing more than 3,100 properties across 48 states (only Hawaii and Vermont are excluded). The company’s leading tenant, making up 5% of the portfolio, is 7-11; the second largest tenant is Mister Car Wash. National Retail has market cap of $6 billion, and boasts that it has raised the dividend payment every year for 31 years.
So, let’s look at the current dividend. NNN currently pays out 52 cents per common share, and even in the coronavirus crisis it held that payment steady. The company’s most recent dividend declaration was in July; the payment was increased from the previous level of 51.5 cents, and marked the start of the 31st year with a dividend increase. The 52-cent payment annualizes to $2.08 per share, and gives an impressive yield of 5.75%.
The reliable dividend is supported by positive earnings. In Q1, when most companies saw sharp declines due to the health and economic crises, NNN’s EPS rose to 71 cents. Q2 saw an earnings contraction, to 65 cents, but that is still more than enough to cover the dividend without dipping into the company’s cash reserves. The dividend payout ratio is 80%, indicating both the company’s commitment to paying out earnings as dividends – and its ability to afford the payment.
B. Riley FBR analyst Craig Kucera likes what he sees in National Retail Properties, especially the company’s ability to collect rents and maintain liquidity. He writes, “NNN boosted 2Q20 collections to 69% (with 21% deferred), while July's collections improved further to 84% (and 6% deferred)… With 90% of tenant rent collection issues worked out and expected to be recovered by the end of 2021, $225M of cash on hand and $900M of LOC availability, and a more encapsulated cash flow/NAV downside than in early 2Q20, we believe investors should take advantage of NNN's discounted valuation to peers.”
In line with his comments, Kucera maintains his Buy rating. His $45 price target suggests a one-year upside for the stock of 27%. (To watch Kucera’s track record, click here)
National Retail Properties has 5 recent analyst reviews, split 4 to 1 between Buy and Hold, giving the stock a Strong Buy analyst consensus rating. The stock’s $41 average price target implies an 18% upside potential from the current $34.68 trading price. (See NNN stock analysis on TipRanks)
TCF Financial Corporation (TCF)
The third stock on our list is a holding company, with multiple bank subsidiaries in the financial sector. The most recognizable subsidiary, TCF Bank, is based in Detroit, Michigan, and has 476 branches in Michigan, Ohio, Illinois, Wisconsin, Minnesota, South Dakota, and Colorado. TCF Financial boasts a market cap over $4 billion.
The social lockdown policies put in place to fight the coronavirus hurt TCF, mainly by reducing traffic at the bank branches. EPS and revenue both fell in 1H20, although both remained strongly positive. The steepest declines were in the first quarter; Q2 saw sequential EPS gains, and the outlook for Q3 is for further EPS gains.
During the half, TCF maintained its dividend payment, keeping up the 35-cent payment per common share. The current declaration, made earlier this month for payment on September 1, marks the fifth quarter in a row with the dividend at this level. With an annualized payment of $1.40, the dividend is yielding 5.2%.
JPMorgan’s Steven Alexopolous is covering TCF shares, and writes, “With TCF well-positioned for a strong 4Q20 and 2021, we continue to expect that a Midwest banking powerhouse has now been created, with the company standing out not only from a growth perspective, but [also] from a credit risk perspective.”
Alexopolous’s Buy rating is bolstered by a $31 price target, implying a 12-month growth potential of 15%. At that, his outlook is somewhat conservative – the average price target on TCF is $36, suggesting the stock has room for 34% growth in the coming year. The shares are currently trading for $26.79. TCF has a Strong Buy analyst consensus rating, based on 4 Buys and 1 Hold set in recent weeks. (See TCF stock analysis on TipRanks)
To find good ideas for 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 analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The post 3 "Strong Buy" Dividend Stocks Yielding at Least 5% appeared first on TipRanks Financial Blog.
$265 Billion In Added Value To Evaporate From Germany Economy Amid Energy Crisis, Study Warns
$265 Billion In Added Value To Evaporate From Germany Economy Amid Energy Crisis, Study Warns
A new report published by the Employment Research…
A new report published by the Employment Research (IAB) on Tuesday outlines how Germany's economy will lose a whopping 260 billion euros ($265 billion) in added value by the end of the decade due to high energy prices sparked by Russia's invasion of Ukraine which will have severe ramifications on the labor market, according to Reuters.
IAB said Germany's price-adjusted GDP could be 1.7% lower in 2023, with approximately 240,000 job losses, adding labor market turmoil could last through 2026. It expects the labor market will begin rehealing by 2030 with 60,000 job additions.
The report pointed out the hospitality industry will be one of the biggest losers in the coming downturn that the coronavirus pandemic has already hit. Consumers who have seen their purchasing power collapse due to negative real wage growth as the highest inflation in decades runs rampant through the economy will reduce spending.
IAB said energy-intensive industries, such as chemical and metal industries, will be significantly affected by soaring power prices.
In one scenario, IAB said if energy prices, already up 160%, were to double again, Germany's economic output would crater by nearly 4% than it would have without energy supply disruptions from Russia. Under this assumption, 660,000 fewer people would be employed after three years and still 60,000 fewer in 2030.
This week alone, German power prices hit record highs as a heat wave increased demand, putting pressure on energy supplies ahead of winter.
Rising power costs are putting German households in economic misery as economic sentiment across the euro-area economy tumbled to a new record low. What happens in Germany tends to spread to the rest of the EU.
There are concerns that a sharp weakening of growth in Germany could trigger stagflation as German inflation unexpectedly re-accelerated in July, with EU-Harmonized CPI rising 8.5% YoY.
"We are facing the biggest crisis the country has ever had. We have to be honest and say: First of all, we will lose the prosperity that we have had for years," Rainer Dulger, head of the Confederation of German Employers' Associations, warned last month.
Besides Dulger, Economy Minister Robert Habeck warned of a "catastrophic winter" ahead over Russian NatGas cut fears.
Other officials and experts forecast bankruptcies, inflation, and energy rationing this winter that could unleash a tsunami of shockwaves across the German economy.
Yasmin Fahimi, the head of the German Federation of Trade Unions, warned last month:
"Because of the NatGas bottlenecks, entire industries are in danger of permanently collapsing: aluminum, glass, the chemical industry."
IAB's report appears to be on point as the German economy seems to be diving head first into an economic crisis. Much of this could've been prevented, but Europe and the US have been so adamant about slapping Russia with sanctions that have embarrassingly backfired.
Will Powell Pivot? Don’t Count On It
Stocks are rallying on hopes that Jerome Powell and the Fed will stop increasing interest rates this fall, pivot, and start reducing them next year. For…
Stocks are rallying on hopes that Jerome Powell and the Fed will stop increasing interest rates this fall, pivot, and start reducing them next year. For fear of missing out on the next great bull run, many investors are blindly buying into this new Powell pivot narrative.
What these investors fail to realize is the Fed has a problem. Inflation is raging, the likes of which the Fed hasn’t dealt with since Jerome Powell earned his law degree from Georgetown University in 1979.
Despite inflation, markets seem to assume that today’s Fed has the same mindset as the 1990-2021 Fed. The old Fed would have stopped raising rates when stocks fell 20% and certainly on the second consecutive negative GDP print. The current Fed seems to want to keep raising rates and reducing its balance sheet (QT).
The market-friendly Fed we grew accustomed to over the last few decades may not be driving the ship anymore. Yesterday’s investment strategies may prove flawed if a new inflation-minded Fed is at the wheel.
Of course, you can ignore the realities of today’s high inflation and take Jim Cramer’s ever-bullish advice.
When the Fed gets out of the way, you have a real window and you’ve got to jump through it. … When a recession comes, the Fed has the good sense to stop raising rates,” the “Mad Money” host said. “And that pause means you’ve got to buy stocks.
Shifting Market Expectations
On June 10, 2022, the Fed Funds Futures markets implied the Fed would raise the Fed Funds rate to 3.20% in January 2023 and to 3.65% by July 2023. Such suggests the Fed would raise rates by almost 50bps between January and July.
Now the market implies Fed Funds will be 3.59% in January, up .40% in the last two months. However, the market implies July Fed Funds will be 3.52%, or .13% less than its January expectations. The market is pricing in a rate reduction between January and July.
The graph below highlights the recent shift in market expectations over the last two months.
The graph below from the Daily Shot shows compares the market’s implied expectations for Fed Funds (black) versus the Fed’s expectations. Each blue dot represents where each Fed member thinks Fed Funds will be at each year-end. The market underestimates the Fed’s resolve to increase interest rates by about 1%.
Short Term Inflation Projections
The biggest flaw with pricing in predicting a stall and Powell pivot in the near term is the possible trajectory of inflation. The graph below shows annual CPI rates based on three conservative monthly inflation data assumptions.
If monthly inflation is zero for the remainder of 2022, which is highly unlikely, CPI will only fall to 5.43%. Yes, that is much better than today’s 9.1%, but it is still well above the Fed’s 2.0% target. The other more likely scenarios are too high to allow the Fed to halt its fight against inflation.
Inflation on its own, even in a rosy scenario, is not likely to get Powell to pivot. However, economic weakness, deteriorating labor markets, or financial instability could change his mind.
Recession, Labor, and Financial Instability
GDP just printed two negative quarters in a row. Some economists call that a recession. The NBER, the official determiner of recessions, also considers the health of the labor markets in their recession decision-making.
The graph below shows the unemployment rate (blue), recessions (gray), and the number of months the unemployment rate troughed (red) before each recession. Since 1950 there have been eleven recessions. On average, the unemployment rate bottoms 2.5 months before an official recession declaration by the NBER. In seven of the eleven instances, the unemployment rate started rising one or two months before a recession.
The unemployment rate may start ticking up shortly, but consider it is presently at a historically low level. At 3.5%, it is well below the 6.2% average of the last 50 years. Of the 630 monthly jobs reports since 1970, there are only three other instances where the unemployment rate dipped to 3.5%. There are zero instances since 1970 below 3.5%!
Despite some recent signs of weakness, the labor market is historically tight. For example, job openings slipped from 11.85 million in March to 10.70 in June. However, as we show below, it remains well above historical norms.
A tight labor market that can lead to higher inflation via a price-wage spiral is of concern for the Fed. Such fear gives the Fed ample reason to keep tightening rates even if the labor markets weaken. For more on price-wage spirals, please read our article Persistent Inflation Scares the Fed.
Besides economic deterioration or labor market troubles, financial instability might cause Jerome Powell to pivot. While there were some growing signs of financial instability in the spring, those warnings have dissipated.
For example, the Fed pays close attention to the yield spread between corporate bonds and Treasury bonds (OAS) for signs of instability. They pay particular attention to yield spreads of junk-rated corporate debt as they are more volatile than investment-grade paper and often are the first assets to show signs of problems.
The graph below plots the daily intersections of investment grade (BBB) OAS and junk (BB) OAS since 1996. As shown, the OAS on junk-rated debt is almost 3% below what should be expected based on the robust correlation between the two yield spreads. Corporate debt markets are showing no signs of instability!
Stocks, on the other hand, are lower this year. The S&P 500 is down about 15% year to date. However, it is still up about 25% since the pandemic started. More importantly, valuations have fallen but are still well above historical averages. So, while stock prices are down, there are few signs of equity market instability. In fact, the recent rally is starting to elicit FOMO behaviors so often seen in speculative bullish runs.
Declining yields, tightening yield spreads, and rising asset prices are inflationary. If anything, recent market stability gives the Fed a reason to keep raising rates. Ex-New York Fed President Bill Dudley recently commented that market speculation about a Fed pivot is overdone and counterproductive to the Fed’s efforts to bring down inflation.
What Does the Fed Think?
The following quotes and headlines have all come out since the late July 2022 Fed meeting. They all point to a Fed with no intent to stall or pivot despite its effect on jobs and the economy.
- *KASHKARI: 2023 RATE CUTS SEEM LIKE `VERY UNLIKELY SCENARIO’
- Fed’s Kashkari: concerning inflation is spreading; we need to act with urgency
- *BOWMAN: SEES RISK FOMC ACTIONS TO SLOW JOB GAINS, EVEN CUT JOBS
- *DALY: MARKETS ARE AHEAD OF THEMSELVES ON FED CUTTING RATES
- St. Louis Fed President James Bullard says he favors a strategy of “front-loading” big interest-rate hikes, repeating that he wants to end the year at 3.75% to 4% – Bloomberg
- FED’S BULLARD: TO GET INFLATION COMING DOWN IN A CONVINCING WAY, WE’LL HAVE TO BE HIGHER FOR LONGER.
- “If you have to cut off the tail of a dog, don’t do it one inch at a time.”- Fed President Bullard
- “There is a path to getting inflation under control,” Barkin said, “but a recession could happen in the process” – MarketWatch
- The Fed is “nowhere near” being done in its fight against inflation, said Mary Daly, the San Francisco Federal Reserve Bank president, in a CNBC interview Tuesday. –MarketWatch
- “We think it’s necessary to have growth slow down,” Powell said last week. “We actually think we need a period of growth below potential, to create some slack so that the supply side can catch up. We also think that there will be, in all likelihood, some softening in labor market conditions. And those are things that we expect…to get inflation back down on the path to 2 percent.”
We are highly doubtful that Powell will pivot anytime soon. Supporting our view is the recent action of the Bank of England. On August 4th they raised interest rates by 50bps despite forecasting a recession starting this year and lasting through 2023. Central bankers understand this inflation outbreak is unique and are caught off guard by its persistence.
The economy and markets may test their resolve, but the threat of a long-lasting price-wage spiral will keep the Fed and other banks from taking their foot off the brakes too soon.
We close by reminding you that inflation will start falling in the months ahead, but it hasn’t even officially peaked yet.recession unemployment pandemic treasury bonds bonds corporate bonds sp 500 stocks fomc fed federal reserve spread recession gdp interest rates unemployment
Airlines Are Going to Hate it if Biden Gets This Through
The administration is considering doing something about one of the things people hate most about flying.
The administration is considering doing something about one of the things people hate most about flying.
The airline industry has had a very bumpy road back to whatever passes for normalcy in the covid era. This past weekend was a particularly bad headache for air travelers, as 950 flights were canceled on Sunday, and 8,000 were delayed. It was a tough weekend overall, as 657 flights were canceled on Saturday, and 7,267 flights were also delayed that day.
In fact, according to the Bureau of Transportation Statistics, of the more than 2.73 million flights so far in 2022, roughly 20% have been delayed while 3% were canceled.
The reasons for this are myriad. Climate change is leading to increasingly unpredictable weather. While many people are beginning to act like covid is over, that’s just not the case, and many flights are still getting canceled because crew members have become infected and need to quarantine.
Additionally, the airlines are all understaffed, as the industry lost more than 400,000 workers during the pandemic. Many pilots retired, and the industry has struggled to attract enough people to replace them in a tight labor market. Additionally, the workers who stayed report that they feel burnt-out and overworked, and in some instances fear for their safety.
This leads to more workers quitting or calling in sick, and therefore flights get canceled because there’s not enough people to work them.
Cancelations are a headache no matter which way you slice it. But a proposal from Transportation Secretary Pete Buttigieg might make it easier for customers to get a refund in a timely manner.
Want A Refund For A Canceled Flight? Good Luck!
Getting a refund for a canceled flight is like pulling teeth.
Technically, it is federal law that consumers are entitled to a refund if an airline cancels a flight and the consumer chooses not to travel, as the Department of Transportation has stated customers can get a refund if the airline “made a significant schedule change and/or significantly delays a flight and the consumer chooses not to travel,” according to the Department of Transportation.
But the problem, as noted by ABC News, is that the “DOT has not defined what constitutes a “significant delay.” According to the agency, whether you are entitled to a refund depends on multiple factors, including the length of the delay, the length of the flight and “your particular circumstances.”
It’s rare for an airline to just say “tough luck” and not give the customer anything after a cancellation. (Imagine the social media firestorm!) But while there’s no industry-wide standard, most airlines just issue vouchers or credits for a future flight instead of a cash refund, which ties the customer to that airline in the future.
What’s even more frustrating is that very often these vouchers will expire within a year, which doesn’t always work for many people’s travel plans. Though to be fair, Southwest (LUV) - Get Southwest Airlines Company Report did recently announce they would be changing this policy, removing all expiration dates from flight credits.
Mayor Pete Wants To Make Refunds Easier
Buttigieg has announced a proposal that would expand customer rights in terms of protections cancelations and refunds for both domestic and international flights. “This new proposed rule would protect the rights of travelers and help ensure they get the timely refunds they deserve from the airlines,” states Buttigieg.
Under the proposal, passengers who do not accept alternate transportation (i.e. getting bumped to a later flight) will be eligible for a refund for any of the below circumstances.
- If your flight is canceled
- Whenever departure or arrival times are delayed by at least three hours for domestic flights or by at least six hours for international flights, if flyers opt-out of taking the flight
- Anytime the departure or arrival airport changes or the number of connections is increased on an itinerary
- If the original aircraft has to be replaced by another but there’s a major difference in the onboard amenities offered and overall travel experience as a result
The proposal would require airlines to issue vouchers, with no expiration date, when passengers are “unable to fly for certain pandemic-related reasons, such as government-mandated bans on travel, closed borders, or passengers advised not to travel to protect their health or the health of other passengers.”
But if an airline or ticket agency received pandemic-related government assistance, they would be required to issue cash refunds instead of vouchers.
In an interview with The Points Guy, Buttigieg said “Every step moves us further towards passengers being more protected,” he said. “This is based on authorities that have built up over time, but it’s clear that the passenger experience isn’t good enough, and we need to do more to clarify airlines’ responsibilities and to make clear what we’re going to do to enforce them.”
While this is just a proposal at the moment, Buttigieg said “I think we can move this one pretty quickly, barring any surprises.” He added that “We are going to be responsive to feedback and the suggestions that come in.”
If you have thoughts on this matter, the public is invited to attend a virtual meeting hosted by the Aviation Consumer Protection Advisory Committee that’s scheduled for Aug. 22, 2022. Any comments you wish to make about this proposal can be submitted here under docket number DOT-OST-2022-0089.
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