Perhaps the biggest story in the stock market these past few weeks is the high volatility, with intraday swings in the S&P 500 index of as much as 4%. Don’t expect that volatility to go away anytime soon, either, as there are plenty of market catalysts looming just ahead.
This week, we’ll see the January jobs numbers, and major companies like Amazon and Google will be reporting earnings. Investors will be watching those numbers with great interest. The first earnings season of 2022 has seen 77% of companies beat the estimates – but by lower margins than the last four quarters. The average beat so far for 4Q21 is 4%, compared to the 16% average in the previous four quarters.
Wall Street’s analysts appear to be counseling some degree of caution going forward. They’re starting to swing their support toward high-yielding dividend stocks, classic defensive plays in a volatile market situation. Opening up the TipRanks database, we examine the details behind three such stocks to find out what else makes them compelling buys.
VICI Properties (VICI)
The first dividend stock we’re looking at is VICI, a New York City-based real estate investment trust (REIT) with a twist – VICI specializes in casino properties. VICI’s portfolio holds gaming, hospitality, and entertainment destinations, including 27 gaming locations and 200 restaurants, bars, and clubs; these properties total over 46 million square feet, and feature over 17,000 hotel rooms.
The company has an active acquisition program, and in the third quarter last year (the most recent reported), it spend over $17 billion acquire MGM Growth Properties. VICI also entered into an arrangement to provide mortgage financing, on the order of $80 million, for BigShots Golf facilities across the US.
VICI’s third quarter top line came in at $375 million, in line with the previous three quarters, and up 10% from 3Q20. Earnings were down, however, from 74 cents per share in the year-ago quarter to 28 cents in 3Q21. The company reported $669 million in liquid assets, however, and that, combined with earnings, was enough to support a 36-cent per common share dividend. That dividend was up 9% from 3Q20. At the current rate, the dividend annualizes to $1.44 and yields 5.22%.
Looking at VICI for Berenberg, analyst Keegan Carl gives an upbeat take on the broad picture.
“VICI has a high-quality gaming portfolio with multiple levers to drive growth, which we believe will be amplified by its expansion into the non-gaming space. The company’s performance throughout the pandemic gives us confidence in its business model. Even with these positive traits, we believe the market continues to undervalue VICI’s embedded pipeline and tenant diversification, which makes its shares’ current discount to the net lease REITs attractive,” Carl opined.
To this end, the analyst rates VICI stock a Buy, and his $35 price target indicates potential for ~22% one-year upside. (To watch Carl’s track record, click here)
With a 3 to 1 breakdown in favor of Buys over Holds from the Street’s analysts, VICI boasts a Strong Buy consensus rating. The shares are priced at $28.62, while the $34 average price target gives ~19% upside potential on the one-year horizon. (See VICI stock forecast on TipRanks)
Chicago Atlantic Real Estate Finance (REFI)
The second dividend stock on our list is another ‘REIT with a twist.’ REFI focuses its investments on real estate credit in the cannabis industry, and it’s become a lender of choice for cannabis industry operators. The company has made a study of industry regulatory barriers, allowing it to streamline its investments for maximum efficiency – with an end results that benefit both the REIT and its borrowers.
In December of last year, REFI went public. Opening its IPO on December 7 and closing it on the 10th. The company put 6.25 million shares on the market at an initial price of $16, and raised over $100 million in gross proceeds. The stock closed at $16.49 on its first day, and has since gained 15%.
Like most REITs, REFI uses a dividend to return profits to shareholders, and the company declared its first common share dividend on December 31. The payment, of 26 cents per share, annualizes to $1.04 and gives a solid yield of 5.6%. This compares favorably to the average yield in the broader markets, which stands 2%.
Aaron Hecht, watching this new stock for JMP, sees opportunity here, as REFI is positioning itself as a big player in anticipation of looser Federal cannabis regulations down the line. He writes: “Due to a Federal banking prohibition on the cannabis industry, operators are lacking capital options, which has resulted in outsized volume and pricing opportunities for financiers. With REFI having completed its IPO on December 7, 2021, raising just over $100mm in gross proceeds, we believe management will deploy and leverage the capital in short order. When the legal framework for cannabis improves at the U.S. Federal level we expect REFI to benefit from a lower cost of debt and to capitalize on its first-mover advantage.”
Hecht’s upbeat outlook leads him to put an Outperform (i.e. Buy) rating on REFI stock, and his $26 price target implies an upside of ~37% for the year ahead. (To watch Hecht’s track record, click here)
The Wall Street analyst corps clearly agrees with the JMP view; REFI gets a unanimous Strong Buy consensus rating based on 4 positive reviews set since the IPO. Looking forward, the $22 average price target predicts ~16% upside from the share price of $19. (See REFI stock forecast on TipRanks)
Plains All American Pipeline (PAA)
Shifting gears, we’ll look at Plains All American, a midstream energy company. Midstream is a vital link in the energy chain, connected well heads to storage and terminal facilities through pipelines, rail tankers, and river traffic. Plains All American has a wide network of assets, with its centers in the Rocky Mountain and Gulf Coast regions. The company has additional assets in California, the Great Lakes, and the Chesapeake Bay. Assets include natural gas gathering, processing, and storage, crude oil storage and refining, transport pipelines, and terminal and export facilities.
Despite a rocky 2021, PAA shares are up 38% in the past 12 months, outperforming the broader markets by a wide margin. The gains have come even though the Biden Administration has moved to cut back on fossil fuel production, through pipeline cancellations and regulatory controls. The share gains reflect the fact that, whatever the Administration priorities, the world runs on fossil fuels.
The gains are visible at the top line, too, as PAA has shown five quarters in a row of sequential revenue growth. In the last quarter reported, 3Q21, the company showed $10.98 billion in total revenue, up 7.5% from Q2 and an even more impressive 86% year-over-year. The energy industry is well-known for generating cash – after all, there is no lack of demand – and PAA reported free cash flow of $1.09 billion for the quarter. After distributions, FCF came in at $927 million.
Distributions means dividends, and PAA pays out generously. The Q4 payment was announced earlier this month at 18 cents per common share. This yields 6.7%, based on an annualized payment of 72 cents per common share. The dividend has been held at its current level for the past two years.
Wolfe analyst Keith Stanley takes a detailed look at this company, and sees it in a strong position for the near future.
“We see a positive setup for Plains in 2022 with a number of modest growth tailwinds, including strong Permian volume growth, start-up of Capline reversal and W2W projects, inflation, Oryx synergies, better NGL markets, and even a higher PLA with oil prices. This should all add up to at least mid-single digit EBITDA growth this year even after incorporating the FY impact of asset sales,” Stanley noted.
“PAA trades among the lowest multiples in our coverage and we think this narrows in 2022 as the company executes on its plan, grows, and returns more capital,” the analyst summed up.
Stanley’s comments back up his Outperform (i.e. Buy) rating, and his $12 price target shows his confidence in a 12% upside for 2022. (To watch Fleishman’s track record, click here)
The market’s collective wisdom agrees. PAA has a Moderate Buy consensus rating, based on 8 Buys, 2 Holds, and 1 Sell. At $13.14, the average price target implies a 22% upside from the current share price of $10.77. (See PAA stock forecast on TipRanks)
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.