The stock market is a game of risk and calculation, and in recent months the risks have increased. The first quarter of 2022 showed a negative net GDP growth rate, i.e. a contraction of 1.4%; another contraction in Q2 will indicate a recession.
Wall Street pundits try to look ahead, see through the fog of uncertainty, and get a sense of where things are headed. Covering the market for Morgan Stanley, Michael Wilson, chief US equity strategist, thinks we’ll dodge the bullet of recession – although it is, in the words of the Duke of Wellington, “the closest thing you’ll ever get view of your life”.
In the words of Wilson, “We remain convinced that lower prices are still to come. In terms of the S&P 500, we think that level is near 3,400…” A decline of this magnitude would represent a further decline of nearly 15% from current levels. This is for the next few months; Looking further ahead, towards the end of the year, Wilson predicts the index will return to a trading range near 3,900.
In either case – a full-blown recession or the year-end rally according to Wilson – the natural move for investors will be toward defensive stocks, moves to protect portfolio investments and secure a stream of income. And that will naturally attract them to high-yielding dividend stocks.
A key factor will be finding dividend-paying stocks that outperform inflation, to guarantee a real return. We used the TipRanks database to extract the details of these stocks, considered strong buy picks on the street with dividend yields of 9% or more. Let’s take a closer look.
The first is MPLX, the midsize spin-off of Marathon Petroleum. MPLX has operated independently of its parent company for the past 10 years and now has an extensive network of midstream oil and gas assets, owning and operating the infrastructure – pipelines, river navigation, terminals and refiners, and tank farms – which keep the product moving from the wellheads to where it is needed. MPLX has a network of assets centered on the Gulf Coast but extending to the Great Lakes, Rockies and Washington State.
Several conflicting factors collide with each other when it comes to MPLX’s recent performance. Politically, the Biden administration’s negative stance on fossil fuels, including pipeline shutdowns, is creating a major headwind; ironically, this political stance, by driving up the price of oil and natural gas, has also benefited MPLX.
The company’s earnings rose steadily through 2021, before leveling off in 1Q22. First-quarter reported EPS of 78 cents was flat sequentially from the fourth quarter. First, MPLX recorded revenues of $2.61 billion. This is a 10% increase over the prior year quarter.
Looking at the company’s cash flow, which is important to dividend investors because they fund payouts, we find that MPLX ended the first quarter with $1.125 billion in cash from operations – a total that included $1.21 billion. dollars in distributable cash. This second figure supported the company’s declaration of a dividend at the end of April, for 70.5 cents per common share, which was paid earlier this month. At $2.82 per common share annualized, the dividend currently pays 9.10%, more than 4.5 times the average dividend of around 2% found among S&P-listed companies.
5-star analyst Justin Jenkins, who covers the energy sector Raymond James, views MPLX as a solid company with a good foundation to grow shareholder returns.
“While MPLX cost reduction and contract protection stabilized earnings power throughout 2020, 2021 results showed a clear recovery in business (refinery operations, G&P volumes and pricing). With MPLX printing a sixth consecutive quarter that rounds to $1.4 billion in adj EBITDA, there should be no doubt about the current earnings power or future financial model.As a result, further catalysts in 2022 via redemptions and distribution growth are reasonable. We remain positive on MPLX’s unique diversification (L&S attracting demand, G&P pushing supply), and argue that this is not fully reflected in the stock,” said Jenkins.
Overall, Jenkins thinks it’s a title worth keeping. The analyst notes that MPLX shares an outperformance (i.e. buy), and its price target of $39 suggests solid upside potential of around 20%. (To see Jenkins’ background, Click here)
With 9 recent analyst analyses, including 7 buys and only 2 holds, MPLX has a strong buy consensus rating. Its average price target of $37.89 implies a one-year upside potential for the stock of around 17%. (See MPLX stock analysis on TipRanks)
Trinity Capital (TRIN)
The next high-yield dividend payer we’re looking at is Trinity Capital, a business development company that works with venture debt, high-risk, high-potential investments made in early-stage companies. Companies like Trinity are making this capital available to start-ups that drive innovation in the economy – and the long-term winners of this cohort will define the economy of the future. During his life at the company, Trinity has made more than 230 investments in start-up companies and currently has over $960 million in assets under management.
Trinity went public in February last year and since then its profits have grown. The latest report, for 1Q22, showed diluted EPS of 54 cents, up 74% from the 31 cents reported in 1Q21. In a broader context, the company reported total net income of $31.8 million, up 83% year-over-year, and net investment income of $15.6 million, or 57 cents per share. The latter was up an impressive 115% over the previous year.
Those numbers supported both an increase in the quarterly common stock dividend, from 36 cents to 40 cents, and a special dividend of 15 cents. This gave a total dividend payment of 55 cents per common share – and the company announced its intention to continue paying special dividends in addition to regular distributions. Taken together, the 55-cent dividend annualizes to $2.20 and yields 13.9%; calculating only with the ordinary dividend of 40 cents, the annualized payout is 10.7%. It is important to note here that Trinity has increased its ordinary share every quarter since it started paying in December 2020.
In his coverage of Wells Fargo, analyst Finian O’She wrote of the company: “TRIN’s ability to create new transactions is impressive to us, especially given the consistency with which it has added new investments on the balance sheet (it has not yet published a negative net origination quarter since its IPO).
“TRIN’s gains on its equity investments give it the largest spillover of any BDC we hedge at $2.62 as of 3/31/22 (~$2.35 adjusted for supply), or ~17 % of net asset value. This should help support the dividend in quarters with lighter origination and prepayments, although we caution that the fallout payment reduces net asset value and therefore earning power,” O added. ‘Shea.
Clearly, O’Shea isn’t deeply concerned about the ripple effect, as he rates this stock as overweight (i.e. buy) with a price target of $16. (To see O’Shea’s record, Click here)
Trinity is fortunate to have a unanimous Strong Buy consensus rating from the street, as all 5 recent analyst reviews are positive. The stock is selling for $15.90 and has an average target of $19.30, suggesting a 22% year-on-year upside. (See TRIN stock forecast on TipRanks)
To find great stock trading ideas at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock information.
Warning: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.